3.
i
FOREWORD TO THE ELEVENTH EDITION
The Ethics is the science of morals in human conduct. Moral
principles and Rules of Conduct impose obligations and withdraw
certain areas of conduct from free option of the individual to do as he
likes. The professional ethics is based on morality and it interprets the
compliance for the specific working of a particular profession in order
to achieve the mission of building the best social environment.
Human nature being what it is, a man often places his personal gain
above service. Therefore, persons who as individuals and as a class,
are willing to place public good above their personal gain have enjoyed
respect and honour. But such a relationship can be maintained or
enhanced only if the professional body to which they belong would
interpret the concept of public interest as broadly as possible. The
respect and confidence enjoyed by a profession, to a great extent, is
dependent on the strictness and scrupulousness with which such a
code is adhered to by self discipline. When in public practice, an
accountant should both be, and appear to be, free of any interest
which might be regarded, whatever its actual effect, as being
incompatible with integrity and objectivity.
The over-riding motto has been ‘pride of service in preference to
personal gain’. A code of professional conduct may have the force of
law, as is the case in this country in some matters, as well as the result
of discipline and conventions voluntarily established by the members,
any breach whereof would result in the person being disentitled to
continue as a member of the professional body. In any event, it has a
great deal of practical value in so far as it proclaims to the public that
the members of the profession will discharge their duties and
responsibilities, having regard to the public interest. This, in turn, will
give an assurance to the public that in the event of a member straying
away from the path of duty, he would be suitably dealt with by the
professional body. The self imposed discipline is necessary to earn
respect as sometimes, some act or omission may not fall strictly under
any clause of the Schedules yet it may be contrary to the ethics. The
professionals are expected to withstand such tests of professional
integrity.
A need was felt to revise the existing Code of Ethics with a view to
meet the ethical requirements in view of the amendment in The
Chartered Accountants Act, 1949 and in the changing scenario of
increasing participation in the accountancy profession worldwide.
While revising the Code of Ethics, the Institute of Chartered
Accountants of India (ICAI) has adopted the International Federation of
Accountants (IFAC) Code of Ethics for professional accountants

4.
ii
subject to the variances, wherever required, have been made to make
it compatible with Indian laws. The provisions of this Code of Ethics
are more stringent than those of IFAC Code. The adoption of IFAC
Code is a step towards compliance of ICAI’s membership obligations
of IFAC.
In bringing out this publication, the Ethical Standards Board and the
Study Group constituted for the revision of the Code, has given their
considerable time in discussions on each and every part of the Code.
In this publication the Board has incorporated and presented very
nicely all the decisions of the Council on ethical issues as well as the
decisions of the Courts on disciplinary cases. Part – A of the Code has
been issued as ‘Guidelines of the Council’.
I must compliment the members of the Study Group and the Board
particularly Shri J. N. Shah, Chairman and Shri V. C. James, Vice-
Chairman & Convener of the Study Group, for achieving this difficult
task in a short time.
I record my appreciation for contribution of Shri N.P.Singh,
Secretary of the Board and the officials of the Institute in bringing out
this publication in record time.
I am confident that this publication will be of great help to all the
members of the Institute.
NEW DELHI VED JAIN
14th
January, 2009 President

5.
iii
FOREWORD TO THE TENTH EDITION
A distinguishing mark of the accountancy profession is acceptance
of its responsibility to the public. The accountancy profession’s public
consists of clients, credit guarantors, governments, employers,
employees, investors, the business and financial community and
others who rely on the objectivity and integrity of a professional
accountant to maintain the orderly functioning of economic order. This
reliance imposes a public interest responsibility on the accountancy
profession.
The Information Technology revolution and globalization of
economy have changed the world for ever and every profession is
facing challenges in this era of tough competition. Accountability of any
profession is crucial for its survival and prosperity. In formulating the
Code of Ethics for the profession, the Institute has always considered
the motto “Pride of service in preference to personal gain” as a litmus
test. User expectation and public perception are crucial criteria while
formulating the Code of Ethics so that there should not be any
expectation gap between the “standards expected” and “those
prescribed”. The Code of Ethics was last revised in January 2001.
Since then, the Council considered various concerns of the profession
and the interest of the society generally as well as the expectations of
the stakeholders in particular.
Whether the notification imposing ceiling on non-audit fees, norms
relaxing the criteria in responding to tenders of government agency or
similar organizations or permitting the members to publish passport
size photograph in their website, the Council, at its own wisdom,
appreciated the changing scenario in the worldorder and the emerging
opportunities of the profession. At the same time, the Council ensured
that the ethical standards for the profession should be complied with at
any cost. We feel proud that the Institute has always marched beyond
the expectation of the society and the members have always
considered as their solemn responsibility to comply with the ethical
standards prescribed by the Council. In this era of globalized economy,
our members are marching confidently ahead to provide the globally
acceptable solutions to the world community.
In bringing out this publication, the Committee on Ethical Standards
& Unjustified Removal of Auditors (CESURA) has done an excellent
job. I learnt that the Committee while updating and revising the draft,
had requested the Past Presidents to give their views/suggestions and
the suggestions received have been appreciated. I gratefully
acknowledge their valuable contribution.

6.
iv
To update the Code, the Committee has incorporated very nicely all
the decisions of the Council on Ethical issues as well as the decisions
on disciplinary cases.
I wish to place on record my deep appreciation & compliment for
Shri Abhijit Bandyopadhyay, Chairman, Committee on Ethical
Standards & Unjustified Removal of Auditors and its other members.
I appreciate the efforts & contribution of Dr. Alok Ray, Secretary to
the Committee and the officials of Institute for this commendable job.
I have no doubt that this publication will make our members more
confident and comfortable to carry out their professional jobs in this
new worldorder.
NEW DELHI SUNIL GOYAL
21st
January, 2005 President

7.
v
FOREWORD TO THE NINTH EDITION
The maintenance of ethical standards is the collective concern of the
Institute as well as all members of the profession. The ideal situation, of
course, would be that the maintenance of ethical standards at individual
member level is so self-evident that its further mention need not be
made. However, the human nature being what it is, a man may often
place his personal gain above service. Therefore, it is necessary to keep
on reinforcing the idea of keeping up and observing the highest ethical
standards repeatedly. With this end in view and also keeping in mind the
need to adhere to our creed “Excellence, Independence and Integrity”, it
is a pleasure to release this publication with the new title “Code of
Ethics” as decided by the Council. These values of profession need to
be further institutionalised and globalised. Therefore, the Council of the
Institute has recently permitted the members of the Institute to post their
particulars on the Website. The detailed guidelines are contained in the
new publication.
I am confident that the members of the profession, in general and the
younger members in particular would definitely strive hard in the interest
of upholding the professional image in the years to come and also to
reduce the expectation gap.
In bringing out this publication, the Committee on Ethical Standards &
Unjustified Removal of Auditors (CESURA) and Council held various
long meetings. All the members of CESURA, particularly its Chairmen,
Shri A.K. Chakraborty, Shri N.K. Gupta, Shri A.C. Shah, Shri S.C.
Bhadra and some of its other members, namely Shri P.N. Shah, Shri
A.H. Dalal, Shri S.P. Chhajed, Shri G. Sitharaman (also past-Presidents)
and Shri Ashok Chandak (now Vice-President) have been very active in
giving their valuable inputs and very useful and educative suggestions.
Shri Chandak’s interpretation of complicated legal aspects of the subject
facilitated the work of the Committee and the Council and was highly
appreciated. Shri Bhadra’s continuous impetus in completing the task
led the publication to its finality.
The Secretariat of CESURA headed by Shri G.D. Khurana who is
Secretary of the Committee and possessing long experience in
Disciplinary, Ethical and Legal matters of the Institute and his colleague
Shri Neeraj Srivastava, Assistant Secretary need to be specifically
mentioned as they have contributed a lot in facilitating the completion of
updating the publication by, inter alia, summarising and placing at
appropriate places the various decisions of the Council and Judgements
of Courts etc.

8.
vi
I am confident that this publication which contains relevant extract,
from decisions and pronouncements which have been made, form time
to time, by the Council along with Council’s perception of major issues,
will go a long way for the assistance of the members. It will also assist
both old and new members in addressing the issues/problems of the
professional conduct which they face in their day to day professional life.
NEW DELHI N.D. GUPTA
13th August, 2001 President

9.
vii
FOREWORD TO THE EIGHTH EDITION
The “Code of Conduct” is essentially a set of professional ethical
standards, regulating the relationship of Chartered Accountants with
their clients, employers, employees, fellow members of the group and
the public generally. According to the International Federation of
Accountants, the ethical requirements of any accountancy body should
be based on integrity, objectivity, independence, confidentiality, high
technical standards, professional competence and above all on ethical
behaviour. The Chartered Accountants Act, 1949 and the Schedules to
the Act set out the acceptable forms of behaviour of the members of the
profession.
However, during the last 40 years since the Act came into force,
certain conventions have been voluntarily established by the members
of the profession which have enhanced the respect and confidence
enjoyed by the profession. The Council of the Institute has been
adhering to these principles strictly and scrupulously in order to maintain
the reputation of the profession.
The first edition of the “Code of Conduct” was published in 1963 and
ever since six more editions of the Code have been out incorporating
the changes that had taken place from time to time. The present Council
felt the need to have a self-contained document which is both up-to-date
and currently relevant. The present edition is a result of this painstaking
and elaborate exercise.
The revised Chartered Accountants Regulations, 1988, which have
replaced the Chartered Accountants Regulations 1964, the recent
decisions of the Council in administering the Code of Conduct, the
various statements on auditing practices and accounting standards,
which are now mandatory, etc. are reflected in the present Code.
The Council wishes to place on record its appreciation and gratitude
to Sarvashri S. Nandagopal, A.K. Chakraborty, S.C. Bafna, Y. Soli and
the members and Secretary of the Ethical Standards Committee for their
painstaking work in revising, updating and editing this Code. The
Council has also taken this opportunity to include the latest case laws
and delete the obsolete ones.

10.
viii
I have great pleasure in bringing out this Eighth Edition of the Code
of Conduct for the guidance of members and students. I hope this
booklet will be of assistance to them in resolving their doubts in the
ethical problems confronted by them in the course of their professional
duties.
NEW DELHI S.K. DASGUPTA
5th July, 1988 President

11.
ix
FOREWORD TO THE SEVENTH EDITION
Since the publication of the Sixth edition of the booklet Code of
Conduct in 1980, the Council has enunciated many ethical principles
and rules touching those areas with which members have immediate
concern. Some of these areas pertain to responding to tenders, use of
the designation Chartered Accountant in invitation cards, guidelines for
members accepting directorships of Public Companies, the
requirements of Sections 224 and 225 of the Companies Act, 1956 in
regard to the appointment and change of auditors, handling of clients
money by the members and so on. In these areas, the Council has
given clarifications and relaxations wherever found necessary so that
members may find it easier to overcome ethical doubts and dilemmas.
I have pleasure in bringing out the revised edition of the booklet for
the benefit of the members and students.
P.A. NAIR
17th December, 1985 President

12.
x
FOREWORD TO THE FIFTH EDITION
In this Fifth Edition of the booklet Code of Conduct several additions
have been made by incorporating the various decisions of the Council
taken since the publication of the last edition relating to the maintenance
of Ethical Standards by the members.
I have pleasure in bringing out the revised edition of the booklet for
the continued benefit of the members and students.
NEW DELHI B.R. MAHESHWARI
4th October, 1976 President

13.
xi
FOREWORD TO THE FOURTH EDITION
This fourth edition of the booklet Code of Conduct has been revised
and brought up-to-date. A noteworthy feature of this new edition is that
several relaxations made by the Council regarding ethical requirements
regarding publicity by members of the Institute have been incorporated.
These relate to publication of Group Headings of Chartered Accountants
in the Telephone Directory, appearance on radio, television and films,
appointments to positions of local or national importance, giving talks or
lectures or attending a Conference and writing articles or letters to the
Press on subjects connected with the profession. A paragraph has been
added on the question of lien upon documents belonging to clients. This
edition also includes notifications on disabilities for acceptance of
appointment as Cost Auditor, liability of a Chartered Accountant who
accepts audit of a Company while he is an employee of the cost auditor
of the Company and liability of a Chartered Accountant when he
expresses his opinion on financial statements of any business or
enterprise in which his relatives have a substantial interest.
In the maintenance of the ethical standards expected of the
members, I trust that the booklet will continue to be of immense help.
NEW DELHI M.C. BHANDARI
31st August, 1971 President

14.
xii
FOREWORD TO THE THIRD EDITION
The booklet was first published in November 1963. It was revised in
September 1966, so as to bring it in line with the Chartered Accountants
Regulations, 1964 which came in force on 18th July, 1964, as several
changes had been introduced in the Regulations and the numbering of
the Regulations and the headings as they appeared in the Chartered
Accountants Regulations, 1949 had also been modified. Certain further
guidelines issued by the Council were also incorporated in the second
edition along with a new notification on the liability of Chartered
Accountants in employment. This third edition includes in addition, a
notification issued by the Council subsequently covering misconduct in
connection with elections.
I trust that this booklet will help members to maintain the ethical
standards expected of them.
NEW DELHI R. VENKATESAN
1st January, 1969 President

15.
xiii
FOREWORD TO THE FIRST EDITION
This booklet, published under the authority of the Council, is being sent
to all members of the Institute and it is hoped that it will give guidance to
them on the observance of a healthy code of professional ethics.
The booklet basically gives elaborate explanations, where necessary
with illustrations, on the various items comprised in the Schedules to the
Chartered Accountants Act, and is by no means meant to be exhaustive
of all acts of omission and commission which may constitute
professional misconduct. No booklet of this nature can achieve the
object of outlining every possible act which may or may not constitute
sound ethical conduct because the practice of professional ethics is
largely a matter of conscience and the determination of members to
distinguish between what is right and wrong.
Ethics is a state of the mind, and there may be some act which,
though it may not strictly fall under one of the items of the Schedule,
may be one which may not be proper by any moral or ethical
standards. In the larger interests of the Institute, the Council exhorts all
members to search their hearts and conscience whenever in doubt,
and thereby assist towards the maintenance of high principles of
professional conduct established by the Council.
As members are aware, the Council has, during the last 14 years,
exercised its disciplinary jurisdiction judiciously but without fear or
favour, and has built up a record of healthy traditions of which it can be
justly proud. The highest standards of ethical behaviour can only
evolve from the conduct of members and the Council feels sure that
whenever members are confronted with two interpretations on a matter
relating to professional conduct-one ethical and the other legalistic-
they would adopt the stricter interpretation than the more liberal one,
even though the latter may be perfectly legal.
The exercise of the highest ethical standards, which ensures the
progress of our Institute, is in the hands of the members themselves.
I would be failing in my duty if I did not acknowledge, with grateful
thanks of the Council, the tremendous efforts put into this work by Mr.
N.R. Mody, the senior-most Member of the Council, who has brought
to bear on this memorandum his wide experience of disciplinary
matters extending over a period of fourteen years.
BOMBAY R.C. COOPER
25th October, 1963 President

20.
IV
PAGE
Section 20 Removal from the Register 109
Section 21 Procedure in Inquiries for Disciplinary
Matters relating to misconduct of the
members of the Institute
110
Section 22 Conduct of the members in any other
circumstances
111
Section 24 Penalty for falsely claiming to be a
Member etc.
121
Section 25 Companies not to engage in
Accountancy
122
Section 26 Unqualified persons not to sign
documents
122
Section 27 Maintenance of Branch Offices 123
FIRST SCHEDULE
PART-I Professional Misconduct in relation to
Chartered Accountants in practice
Clause-1 Practice by non-chartered accountant 126
Clause-2 Shares fees with non-Member 126
Clause-3 Accepts fees from non-Member 131
Clause-4 Enters into partnership with non-Member 131
Clause-5 Secures professional business through
non-employee/non-partner or unlawful
means
135
Clause-6 Solicits professional work 135
Clause-7 Advertises professional attainment 153
Clause-8 Fails to communicate with outgoing
auditor
163
Clause-9 Non compliance of Section 225 of the
Companies Act, 1956
188
Clause-10 Charging fees based on percentage/
contingency
210
Clause-11 Engages in any other occupation 211
Clause-12 Allows non-Member/non-partner to sign
documents on his behalf
225

21.
V
PAGE
PART-II Professional Misconduct in Relation
to Members of the Institute in Service
Clause-1 Shares his emoluments with others 227
Clause-2 Accepts commission or gratification from
a lawyer etc. engaged by the employee
227
PART-III Professional Misconduct in Relation
to Members of the Institute generally
Clause-1 Acts falsely as FCA 228
Clause-2 Does not supply information to the
Institute and its other functionaries
228
Clause-3 Gives false information under Clause (6)
and (7) of the First Schedule
228
PART-IV Other Misconduct of Members in
General
Clause-1 Becomes guilty of any offence
punishable with imprisonment for less
than 6 months
229
Clause-2 Bring disrepute to the profession/Institute
as a result of his action
229
SECOND SCHEDULE
PART-I Professional Misconduct in relation to
chartered accountants in Practice
Clause-1 Discloses information acquired without
client’s consent
230
Clause-2 Certifies/submits report without
examining the related records
236
Clause-3 Permits to use name for vouching the
accuracy of future contingent earnings
238
Clause-4 Opines on Financial Statement where
substantial interest involved
239
Clause-5 Fails to disclose any material fact in
Financial Statement
244
Clause-6 Fails to report a known material
misstatement appearing in Financial
Statement
247
Clause-7 Performs professional duties without due
diligence/grossly negligent
251

22.
VI
PAGE
Clause-8 Fails to obtain sufficient information for
expressing an opinion
274
Clause-9 Fails to invite attention to any material
departure from the generally accepted
procedure of audit
281
Clause-10 Keeps client’s money without opening
separate bank account
286
PART- II Professional Misconduct of Members
of the Institute generally
Clause-1 Contravenes any of the provisions of the
Act/Regulations & Guidelines issued by
the Council
290
Clause-2 Discloses employer’s information without
permission
298
Clause-3 Provides false information to the Institute
and its different authorities
298
Clause-4 Defalcates/embezzles money received in
professional capacity
307
PART-III Other Misconduct in relation to
members of the Institute generally
Clause Becomes guilty of any offence
punishable with imprisonment for more
than six months, either in civil or criminal
case.
308
CHAPTER-6 COUNCIL GUIDELINES 309-323
— Guidelines for Advertisement 309
— Council General Guidelines 2008 313
CHAPTER-7 SELF REGULATORY MEASURES
RECOMMENDED BY THE COUNCIL
324-327
APPENDICES 328-349
— Appendix ‘A’ in re. p.107 328
— Appendix ‘B’ in re. p.133 329
— Appendix ‘C’ in re. p.134 332
— Appendix ‘D’ in re. p.159 336
— Appendix ‘E’ in re. p.197 340
— Appendix ‘F’ in re. p.212, 240 & 242 345

23.
CODE OF ETHICS
1
PART-A
CHAPTER 1
GENERAL APPLICATION OF THE CODE
Section 100
Introduction and Fundamental Principles
100.1 A distinguishing mark of the accountancy profession is its
acceptance of the responsibility to act in the public interest.
Therefore, a professional accountant’s*
responsibility is
not exclusively to satisfy the needs of an individual client or
employer. In acting in the public interest a professional
accountant should observe and comply with the ethical
requirements of this Code.
100.2 This part of the Code is in three chapters. Chapter 1
establishes the fundamental principles of professional ethics
for professional accountants and provides a conceptual
framework for applying those principles. The conceptual
framework provides guidance on fundamental ethical
principles. Professional accountants are required to apply
this conceptual framework to identify threats to compliance
with the fundamental principles, to evaluate their
significance and, if such threats are other than clearly
insignificant*
to apply safeguards to eliminate them or
reduce them to an acceptable level such that compliance
with the fundamental principles is not compromised.
100.3 Chapters 2 and 3 illustrate how the conceptual framework is
to be applied in specific situations. It provides examples of
safeguards that may be appropriate to address threats to
compliance with the fundamental principles and also
provides examples of situations where safeguards are not
available to address the threats and consequently the
activity or relationship creating the threats should be
avoided. Chapter 2 applies to professional accountants in
public practice*. Chapter 3 applies to professional
*
See Definitions.

24.
CODE OF ETHICS
2
accountants in service*. Professional accountants in
public practice may also find the guidance in Chapter 3
relevant to their particular circumstances.
Fundamental Principles
100.4 A professional accountant is required to comply with the
following fundamental principles:
(a) Integrity
A professional accountant should be straightforward
and honest in all professional and business
relationships.
(b) Objectivity
A professional accountant should not allow bias,
conflict of interest or undue influence of others to
override professional judgments.
(c) Professional Competence and Due Care
A professional accountant has a continuing duty to
maintain professional knowledge and skill at the level
required to ensure that a client or employer receives
competent professional service based on current
developments in practice, legislation and techniques. A
professional accountant should act diligently and in
accordance with applicable technical and professional
standards while providing professional services. *
(d) Confidentiality
A professional accountant should respect the
confidentiality of information acquired as a result of
professional and employment relationships and should
not disclose any such information to third parties
without proper and specific authority unless there is a
legal or professional right or duty to disclose.
Confidential information acquired as a result of
professional and employment relationships should not
be used for the personal advantage of the professional
accountant or third parties.
(e) Professional Behaviour
A professional accountant should comply with relevant
*
See Definitions.

25.
CODE OF ETHICS
3
laws and regulations and should avoid any action that
discredits the profession.
Each of these fundamental principles is discussed in
more detail in Sections 110 – 150.
Conceptual Framework Approach
100.5 The circumstances in which professional accountants
operate may give rise to specific threats to compliance with
the fundamental principles. It is impossible to define every
situation that creates such threats and specify the
appropriate mitigating action. In addition, the nature of
engagements and work assignments may differ and
consequently different threats may exist, requiring the
application of different safeguards. A conceptual framework
that requires a professional accountant to identify, evaluate
and address threats to compliance with the fundamental
principles, rather than merely comply with a set of specific
rules which may be arbitrary, is, therefore, in the public
interest. This Code provides a framework to assist a
professional accountant to identify, evaluate and respond to
threats to compliance with the fundamental principles. If
identified threats are other than clearly insignificant, a
professional accountant should, where appropriate, apply
safeguards to eliminate the threats or reduce them to an
acceptable level, such that compliance with the fundamental
principles is not compromised.
100.6 A professional accountant has an obligation to evaluate any
threats to compliance with the fundamental principles when
the professional accountant knows, or could reasonably be
expected to know, of circumstances or relationships that
may compromise compliance with the fundamental
principles.
100.7 A professional accountant should take qualitative as well as
quantitative factors into account when considering the
significance of a threat. If a professional accountant cannot
implement appropriate safeguards, the professional
accountant should decline or discontinue the specific
professional service involved, or where necessary resign
from the client (in the case of a professional accountant in
public practice) or the employing organization (in the case of
a professional accountant in service).

26.
CODE OF ETHICS
4
100.8 Chapters 2 and 3 of this Code include examples that are
intended to illustrate how the conceptual framework is to be
applied. The examples are not intended to be, nor should
they be interpreted as, an exhaustive list of all
circumstances experienced by a professional accountant
that may create threats to compliance with the fundamental
principles. Consequently, it is not sufficient for a professional
accountant merely to comply with the examples presented;
rather, the framework should be applied to the particular
circumstances encountered by the professional accountant.
Threats and Safeguards
100.9 Compliance with the fundamental principles may potentially
be threatened by a broad range of circumstances. Many
threats fall into the following categories:
(a) Self-interest threats, which may occur as a result of the
financial or other interests of a professional accountant
or of a relative*
;
(b) Self-review threats, which may occur when a previous
judgment needs to be re- evaluated by the professional
accountant responsible for that judgment;
(c) Advocacy threats, which may occur when a
professional accountant promotes a position or opinion
to the point that subsequent objectivity may be
compromised;
(d) Familiarity threats, which may occur when, because of
a relationship, a professional accountant becomes too
sympathetic to the interests of others; and
(e) Intimidation threats, which may occur when a
professional accountant may be deterred from acting
objectively by threats, actual or perceived.
Chapters 2 and 3 of this Code, respectively, provide
examples of circumstances that may create these
categories of threats for professional accountants in public
practice and professional accountants in service.
Professional accountants in public practice may also find the
guidance in Chapter 3 relevant to their particular
circumstances.
*
See Definitions.

27.
CODE OF ETHICS
5
100.10 Safeguards that may eliminate or reduce such threats to an
acceptable level fall into two broad categories:
(a) Safeguards created by the profession, legislation or
regulation; and
(b) Safeguards in the work environment.
100.11 Safeguards created by the profession, legislation or
regulation include, but are not restricted to:
Educational, training and experience requirements for
entry into the profession.
Continuing professional development requirements.
Corporate governance regulations.
Professional standards.
Professional or regulatory monitoring and disciplinary
procedures.
External review by a legally empowered third party of
the reports, returns, communications or information
produced by a professional accountant.
100.12 Chapters 2 and 3 of this Code, respectively, discuss
safeguards in the work environment for professional
accountants in public practice and those in service.
100.13 Certain safeguards may increase the likelihood of identifying
or deterring the unethical behaviour. Such safeguards,
which may be created by the accounting profession,
legislation, regulation or an employing organization, include,
but are not restricted to:
Effective, well publicized complaints systems operated
by the employing organization, the profession or a
regulator, which enable colleagues, employers and
members of the public to draw attention to
unprofessional or unethical behaviour.
An explicitly stated duty to report breaches of ethical
requirements.
100.14 The nature of the safeguards to be applied will vary
depending on the circumstances. In exercising professional
judgment, a professional accountant should consider what a
reasonable and informed third party, having knowledge of all
relevant information, including the significance of the threat

28.
CODE OF ETHICS
6
and the safeguards applied, would conclude to be
unacceptable.
Ethical Conflict Resolution
100.15 In evaluating compliance with the fundamental principles, a
professional accountant may be required to resolve a
conflict in the application of fundamental principles.
100.16 When initiating either a formal or informal conflict resolution
process, a professional accountant should consider the
following, either individually or together with others, as part
of the resolution process:
(a) Relevant facts;
(b) Ethical issues involved;
(c) Fundamental principles related to the matter in
question;
(d) Established internal procedures; and
(e) Alternative courses of action.
Having considered these issues, a professional accountant
should determine the appropriate course of action that is
consistent with the fundamental principles identified. The
professional accountant should also weigh the
consequences of each possible course of action. If the
matter remains unresolved, the professional accountant
should consult with other appropriate persons within the
firm*
or employing organization for help in obtaining
resolution.
100.17 Where a matter involves a conflict with, or within, an
organization, a professional accountant should also consider
consulting with those charged with governance of the
organization, such as the board of directors or the audit
committee.
100.18 It may be in the best interests of the professional accountant
to document the substance of the issue and details of any
discussions held or decisions taken, concerning that issue.
100.19 If a significant conflict cannot be resolved, a professional
accountant may wish to obtain professional advice from the
relevant professional body or legal advisors, and thereby
*
See Definitions.

29.
CODE OF ETHICS
7
obtain guidance on ethical issues without breaching
confidentiality. For example, a professional accountant may
have encountered a fraud, the reporting of which could
breach the professional accountant’s responsibility to
respect confidentiality. The professional accountant should
consider obtaining legal advice to determine whether there
is a requirement to report.
100.20 If, after exhausting all relevant possibilities, the ethical
conflict remains unresolved, a professional accountant
should, where possible, refuse to remain associated with the
matter creating the conflict. The professional accountant
may determine that, in the circumstances, it is appropriate to
withdraw from the engagement team*
or specific
assignment, or to resign altogether from the engagement,
the firm or the employing organization.
Section 110
Integrity
110.1 The principle of integrity imposes an obligation on all
professional accountants to be straightforward and honest in
professional and employment relationships. Integrity also
implies fair dealing and maintaining an impartial attitude and
truthfulness.
110.2 A professional accountant should not be associated with
reports, returns, communications or other information where
he believes that the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information furnished
negligently; or
(c) Omits or obscures any information required to be
included where such omission or obscurity would be
misleading.
110.3 A professional accountant will not be considered to be in
breach of paragraph 110.2 if the professional accountant
provides a modified report in respect of a matter contained
in paragraph 110.2.
*
See Definitions

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Section 120
Objectivity
120.1 The principle of objectivity imposes an obligation on all
professional accountants not to compromise their
professional duty or while in service judgment because of
bias, conflict of interest or the undue influence of others.
120.2 A professional accountant may be exposed to situations that
may impair objectivity. It is impracticable to define and
prescribe all such situations. Relationships that bias or
unduly influence the professional judgment of the
professional accountant should be avoided.
Section 130
Professional Competence and Due Care
130.1 The principle of professional competence and due care
imposes the following obligations on professional
accountants:
(a) To maintain professional knowledge and skill at the
level required to ensure that the clients or employers
receive competent professional service; and
(b) To act diligently in accordance with applicable technical
and professional standards while providing
professional services.
130.2 Competent professional service requires the exercise of
sound judgment in applying professional knowledge and skill
in the performance of such service. Professional
competence may be divided into two separate phases:
(a) Attainment of professional competence; and
(b) Maintenance of professional competence.
130.3 The maintenance of professional competence requires a
continuing awareness and an understanding of relevant
technical professional and business developments.
Continuing professional development develops and
maintains the capabilities that enable a professional
accountant to perform competently within the professional
environments.
130.4 Diligence encompasses the responsibility to act in

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accordance with the requirements of an assignment,
carefully, thoroughly and on a timely basis.
130.5 A professional accountant should take steps to ensure that
those working under the professional accountant’s authority
in a professional capacity have appropriate training and
supervision.
130.6 Where appropriate, a professional accountant should make
clients, employers or other users of the professional
services aware of limitations inherent in the services to
avoid the misinterpretation of an expression of opinion as an
assertion of fact.
Section 140
Confidentiality
140.1 The principle of confidentiality imposes an obligation on
professional accountants to refrain from:
(a) Disclosing outside the firm or employing organization
information acquired as a result of professional and
employment relationships without proper and specific
authority or unless there is a legal or professional right
or duty to disclose; and
(b) Using information acquired as a result of professional
and employment relationships to their personal
advantage or the advantage of third parties.
140.2 A professional accountant should maintain confidentiality
even in a social environment. The professional accountant
should be alert to the possibility of inadvertent disclosure,
particularly in circumstances involving long association with
a business associate or a relative*
.
140.3 A professional accountant should also maintain
confidentiality of information disclosed by a prospective
client or employer.
140.4 A professional accountant should also consider the need to
maintain confidentiality of information within the firm or
employing organization.
140.5 A professional accountant should take all reasonable steps
to ensure that staff under the professional accountant’s
*
See Definitions.

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control and persons from whom advice and assistance is
obtained respect the professional accountant’s duty of
confidentiality.
140.6 The need to comply with the principle of confidentiality
continues even after the end of relationships between a
professional accountant and a client or employer. When a
professional accountant acquires a new client or changes
employment, the professional accountant is entitled to use
prior experience. The professional accountant should not,
however, use or disclose any confidential information either
acquired or received as a result of a professional or
employment relationship.
140.7 The following are circumstances where professional
accountants are or may be required to disclose confidential
information or when such disclosure may be appropriate:
(a) Disclosure is permitted by law and is authorized by the
client or the employer;
(b) Disclosure is required by law, for example:
(i) Production of documents or other provision of
evidence in the course of legal proceedings; or
(ii) Disclosure to the appropriate public authorities of
infringements of the law that come to light; and
(c) There is a professional duty or right to disclose, when
not prohibited by law:
(i) To comply with the requirement of peer review or
quality review of a member body or professional
body.
(ii) To respond to an inquiry or investigation by a
member body or regulatory body;
(iii) To protect the professional interests of a
professional accountant in legal proceedings; or
(iv) To comply with technical standards and ethical
requirements.
140.8 In deciding whether to disclose confidential information,
professional accountants should consider the following
points:
(a) Whether the interests of all parties, including third
parties whose interests may be affected, could be

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harmed if the client or employer consents to the
disclosure of information by the professional
accountant;
(b) Whether all the relevant information is known and
substantiated, to the extent it is practicable; when the
situation involves unsubstantiated facts, incomplete
information or unsubstantiated conclusions,
professional judgment should be used in determining
the type of disclosure to be made, if any; and
(c) The type of communication that is expected and to
whom it is addressed; in particular, professional
accountants should be satisfied that the parties to
whom the communication is addressed are appropriate
recipients.
Section 150
Professional Behaviour
150.1 The principle of professional behaviour imposes an
obligation on professional accountants to comply with
relevant laws and regulations and avoid any action that may
bring discredit to the profession. The professional
accountants should act in a manner consistent with the
reputation of the profession and refrain from any conduct
which might bring disrepute to the profession.
150.2 In promoting themselves and their work, professional
accountants should not bring the profession into disrepute
and should be honest and truthful and should not:
(a) Make exaggerated claims for the services they are able
to offer, the qualifications they possess, or experience
they have gained; or
(b) Make disparaging references or unsubstantiated
comparisons to the work of others.
(c) Advertise any professional/other facts which are in
violation of advertisement guidelines issued by the
Council*
of the Institute from time to time.
*
See Definitions.

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CHAPTER 2
PROFESSIONAL ACCOUNTANTS IN
PUBLIC PRACTICE
Section 200
Introduction
200.1 This Chapter of the Code illustrates how the conceptual
framework contained in Chapter 1 is to be applied by
professional accountants in public practice. The examples in
the following sections are not intended to be, nor should
they be interpreted as, an exhaustive list of all
circumstances experienced by a professional accountant in
public practice that may create threats to compliance with
the principles. Consequently, it is not sufficient for a
professional accountant in public practice merely to comply
with the examples presented; rather, the framework should
be applied to the particular circumstances faced.
200.2 A professional accountant in public practice should not
engage in any business, occupation or activity that impairs
or might impair integrity, objectivity or the good reputation of
the profession and as a result would be incompatible with
the rendering of professional services.
Threats and Safeguards
200.3 Compliance with the fundamental principles may potentially
be threatened by a broad range of circumstances. Many
threats fall into the following categories:
(a) Self-interest;
(b) Self-review;
(c) Advocacy;
(d) Familiarity; and
(e) Intimidation.
These threats are also discussed in Chapter 1.
The nature and significance of the threats may differ
depending on whether they arise in relation to the provision

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of services to a financial statement audit client*, a non-
financial statement audit assurance client* or a non-
assurance client.
200.4 Examples of circumstances that may create self-interest
threats for a professional accountant in public practice
include, but are not limited to:
A financial interest*
in a client or jointly holding a
financial interest with a client.
Undue dependence on total fees from a client subject
to Council guidelines issued from time to time in this
regard.
Having a close business relationship with a client.
Concern about the possibility of losing a client.
Potential employment with a client
A loan to or from an assurance client or any of its
directors or officers, subject to Council guidelines
issued from time to time in this regard.
200.5 Self Review Threats: Examples of circumstances that may
create self-review threats include, but are not limited to:
The discovery of a significant error during a re-
evaluation of the work of the professional accountant in
public practice.
Reporting on the operation of financial systems after
being involved in their design or implementation.
Having prepared the original data used to generate
records that are the subject matter of the engagement.
A member of the assurance team* being, or having
recently been, a director or officer* of that client.
A member of the assurance team being, or having
recently been, employed by the client in a position to
exert direct and significant influence over the subject
matter of the engagement.
Performing a service for a client that directly affects the
subject matter of the assurance engagement.
*
See Definitions.

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200.6 Advocacy Threats: Examples of circumstances that may
create advocacy threats include, but are not limited to:
Promoting shares in a listed entity*
when that entity is
a financial statement audit client.
Acting as a representative on behalf of an assurance
client in litigation or disputes with third parties.
200.7 Familiarity Threats: Examples of circumstances that may
create familiarity threats include, but are not limited to:
A member of the engagement team is a relative of a
director or officer of the client.
A member of the engagement team is a relative of an
employee of the client who is in a position to exert
direct and significant influence over the subject matter
of the engagement.
A former partner of the firm being a director or officer of
the client or an employee in a position to exert direct
and significant influence over the subject matter of the
engagement.
Accepting gifts or preferential treatment from a client.
Long association of senior personnel with the
assurance client.
200.8 Intimidation Threats: Examples of circumstances that may
create intimidation threats include, but are not limited to:
Being threatened with dismissal or replacement in
relation to a client engagement.
Being threatened with litigation.
Being pressured to reduce inappropriately the extent of
work performed in order to reduce fees.
200.9 A professional accountant in public practice may also find
that specific circumstances give rise to unique threats to
compliance with one or more of the fundamental principles.
Such unique threats obviously cannot be categorized. In
either professional or employment relationships, a
professional accountant in public practice should always be
on the alert for such circumstances and threats.
200.10 Safeguards that may eliminate or reduce threats to an
*
See Definitions.

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15
acceptable level fall into two broad categories:
(a) Safeguards created by the profession, legislation or
regulation; and
(b) Safeguards in the work environment.
Examples of safeguards created by the profession,
legislation or regulation are described in paragraph 100.11.
200.11 In the work environment, the relevant safeguards will vary
depending on the circumstances. Work environment
safeguards comprise firm-wide safeguards and engagement
specific safeguards.
200.12 Firm-wide safeguards in the work environment may include:
Leadership of the firm that stresses the importance of
compliance with the fundamental principles.
Leadership of the firm that establishes the expectation
that members of an assurance team will act in the
public interest.
Policies and procedures to implement and monitor
quality control of engagements.
Documented policies regarding the identification of
threats to compliance with the fundamental principles,
the evaluation of the significance of these threats and
the identification and the application of safeguards to
eliminate or reduce the threats, other than those that
are clearly insignificant, to an acceptable level.
For firms that perform assurance engagements,
documented independence*
policies regarding the
identification of threats to independence, the evaluation
of the significance of these threats and the evaluation
and application of safeguards to eliminate or reduce
the threats, other than those that are clearly
insignificant, to an acceptable level.
Documented internal policies and procedures requiring
compliance with the fundamental principles.
Policies and procedures that will enable the
identification of interests or relationships between the
firm or members of engagement teams and clients.
*
See Definitions.

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16
Policies and procedures to monitor and, if necessary,
manage the reliance on revenue received from a single
client.
Using different partners and engagement teams with
separate reporting lines for the provision of non-
assurance services to an assurance client.
Policies and procedures to prohibit individuals who are
not members of an engagement team from
inappropriately influencing the outcome of the
engagement.
Timely communication of a firm’s policies and
procedures, including any changes to them, to all
partners and professional staff, and appropriate
training and education on such policies and
procedures.
Designating a member of senior management to be
responsible for overseeing the adequate functioning of
the firm’s quality control system.
Advising partners and professional staff of those
assurance clients and related entities from which they
must be independent.
A disciplinary mechanism to promote compliance with
policies and procedures.
Published policies and procedures to encourage and
empower staff to communicate to senior levels within
the firm any issue relating to compliance with the
fundamental principles that concerns them.
200.13 Engagement-specific safeguards in the work environment
may include:
Involving an additional professional accountant to
review the work done or otherwise advise as
necessary.
Consulting an independent third party, such as a
committee of independent directors, a professional
regulatory body or another professional accountant.
Discussing ethical issues with those charged with
governance of the client.
Disclosing to those charged with governance of the

39.
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17
client the nature of services provided and extent of fees
charged.
Rotating senior assurance team personnel.
200.14 Depending on the nature of the engagement, a professional
accountant in public practice may also be able to rely on
safeguards that the client has implemented. However it is
not possible to rely solely on such safeguards to reduce
threats to an acceptable level.
200.15 Safeguards within the client’s systems and procedures may
include:
When a client appoints a firm in public practice to
perform an engagement, persons other than
management ratify or approve the appointment.
The client has competent employees with experience
and seniority to make managerial decisions.
The client has implemented internal procedures that
ensure objective choices in commissioning non-
assurance engagements.
The client has a corporate governance structure that
provides appropriate oversight and communications
regarding the firm’s services.
Section 210
Professional Appointment
Client Acceptance
210.1 Before accepting a new client relationship, a professional
accountant in public practice should consider whether
acceptance would create any threats to compliance with the
fundamental principles. Potential threats to integrity or
professional behaviour may be created from, for example,
questionable issues associated with the client (its owners,
management and activities).
210.2 Client issues that, if known, could threaten compliance with
the fundamental principles include, for example, client
involvement in illegal activities (such as money laundering),
dishonesty or questionable financial reporting practices.
210.3 The significance of any threats should be evaluated. If
identified threats are other than clearly insignificant,

40.
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safeguards should be considered and applied as necessary
to eliminate them or reduce them to an acceptable level.
210.4 Appropriate safeguards may include obtaining knowledge
and understanding of the client, its owners, managers and
those responsible for its governance and business activities,
or securing the client’s commitment to improve corporate
governance practices or internal controls.
210.5 Where it is not possible to reduce the threats to an
acceptable level, a professional accountant in public
practice should decline to enter into the client relationship.
210.6 Acceptance decisions should be periodically reviewed for
recurring client engagements.
Engagement Acceptance
210.7 A professional accountant in public practice should agree to
provide only those services that the professional accountant
in public practice is competent to perform. Before accepting
a specific client engagement, a professional accountant in
public practice should consider whether acceptance would
create any threats to compliance with the fundamental
principles. For example, a self-interest threat to professional
competence and due care is created if the engagement
team does not possess, or cannot acquire, the
competencies necessary to properly carry out the
engagement.
210.8 A professional accountant in public practice should evaluate
the significance of identified threats and, if they are other
than clearly insignificant, safeguards should be applied as
necessary to eliminate them or reduce them to an
acceptable level. Such safeguards may include:
Acquiring an appropriate understanding of the nature of
the client’s business, the complexity of its operations,
the specific requirements of the engagement and the
purpose, nature and scope of the work to be
performed.
Acquiring knowledge of relevant industries or subject
matters.
Possessing or obtaining experience with relevant
regulatory or reporting requirements.

41.
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Assigning sufficient staff with the necessary
competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance
of the engagement.
Complying with quality control policies and procedures
designed to provide reasonable assurance that specific
engagements are accepted only when they can be
performed competently.
210.9 When a professional accountant in public practice intends to
rely on the advice or work of an expert, the professional
accountant in public practice should evaluate whether such
reliance is warranted. The professional accountant in public
practice should consider factors such as reputation,
expertise, resources available and applicable professional
and ethical standards. Such information may be gained
from prior association with the expert or from consulting
others.
Changes in a Professional Appointment
210.10 A professional accountant in public practice who is asked to
replace another professional accountant in public practice,
or who is considering tendering for an engagement currently
held by another professional accountant in public practice,
should determine whether there are any reasons,
professional or other, for not accepting the engagement,
such as circumstances that threaten compliance with the
fundamental principles. For example, there may be a threat
to professional competence and due care if a professional
accountant in public practice accepts the engagement
before knowing all the pertinent facts.
210.11 The significance of the threats should be evaluated. It shall
require direct communication with the existing accountant*
to establish the facts and circumstances behind the
proposed change so that the professional accountant in
public practice can decide whether it would be appropriate
to accept the engagement. For example, the apparent
reasons for the change in appointment may not fully reflect
the facts and may indicate disagreements with the existing
*
See Definitions.

42.
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20
accountant that may influence the decision as to whether to
accept the appointment.
210.12 An existing accountant is bound by confidentiality. The
extent to which the professional accountant in public
practice can and should discuss the affairs of a client with a
proposed accountant will depend on the nature of the
engagement and on:
(a) Whether the client’s permission to do so has been
obtained; or
(b) The legal or ethical requirements relating to such
communications and disclosure, which may vary by
jurisdiction.
210.13 In the absence of specific instructions by the client, an
existing accountant should not ordinarily volunteer
information about the client’s affairs. Circumstances where it
may be appropriate to disclose confidential information are
set out in Section 140.
210.14 If identified threats are other than clearly insignificant,
safeguards should be considered and applied as necessary
to eliminate them or reduce them to an acceptable level.
210.15 Such safeguards may include:
Discussing the client’s affairs fully and freely with the
existing accountant;
Asking the existing accountant to provide known
information on any facts or circumstances, that, in the
existing accountant’s opinion, the proposed accountant
should be aware of before deciding whether to accept
the engagement;
When replying to requests to submit tenders, stating in
the tender that, before accepting the engagement,
contact with the existing accountant will be requested
so that inquiries may be made as to whether there are
any professional or other reasons why the appointment
should not be accepted.
210.16 A professional accountant in public practice will need not to
obtain the client’s permission, to initiate discussion with an
existing accountant.. The existing accountant should comply
with relevant legal and other regulations governing such
requests. Where the existing accountant provides

43.
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21
information, it should be provided honestly and
unambiguously. If the proposed accountant is not able to get
information from the existing accountant, the proposed
accountant should try to obtain information about any
possible threats by other means such as through inquiries of
third parties or background investigations on senior
management or those charged with governance of the
client.
210.17 Where the threats cannot be eliminated or reduced to an
acceptable level through the application of safeguards, a
professional accountant in public practice should, unless
there is satisfaction as to necessary facts by other means,
decline the engagement.
210.18 A professional accountant in public practice may be asked
to undertake work that is complementary or additional to the
work of the existing accountant. Such circumstances may
give rise to potential threats to professional competence and
due care resulting from, for example, a lack of or incomplete
information. Safeguards against such threats include
notifying the existing accountant of the proposed work,
which would give the existing accountant the opportunity to
provide any relevant information needed for the proper
conduct of the work.
Section 220
Conflicts of Interest
220.1 A professional accountant in public practice should take
reasonable steps to identify circumstances that could pose a
conflict of interest. Such circumstances may give rise to
threats to compliance with the fundamental principles. For
example, a threat to objectivity may be created when a
professional accountant in public practice competes directly
with a client or has a joint venture or similar arrangement
with major competitor of a client. A threat to objectivity or
confidentiality may also be created when a professional
accountant in public practice performs services for clients
whose interests are in conflict or the clients are in dispute
with each other in relation to the matter or transaction in
question.
220.2 A professional accountant in public practice should evaluate
the significance of any threats. Evaluation includes

44.
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22
considering, before accepting or continuing a client
relationship or specific engagement, whether the
professional accountant in public practice has any business
interests, or relationships with the client or a third party that
could give rise to threats. If threats are other than clearly
significant, safeguards should be considered and applied as
necessary to eliminate them or reduce them to an
acceptable level.
220.3 Depending upon the circumstances giving rise to the
conflict, safeguards should ordinarily include the
professional accountant in public practice:
(a) Notifying the client of the firm’s business interest or
activities that may represent a conflict of interest, and
obtaining their consent to act in such circumstances; or
(b) Notifying all known relevant parties that the
professional accountant in public practice is acting for
two or more parties in respect of a matter where their
respective interests are in conflict, and obtaining their
consent to so act; or
(c) Notifying the client that the professional accountant in
public practice does not act exclusively for any one
client in the provision of proposed services (for
example, in a particular market sector or with respect
to a specific service) and obtaining their consent to so
act.
220.4 The following additional safeguards should also be
considered:
(a) The use of separate engagement teams; and
(b) Procedures to prevent access to information (e.g., strict
physical separation of such teams, confidential and
secure data filing); and
(c) Clear guidelines for members of the engagement team
on issues of security and confidentiality; and
(d) The use of confidentiality agreements signed by
employees and partners of the firm; and
(e) Regular review of the application of safeguards by a
senior individual not involved with relevant client
engagements.

45.
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220.5 Where a conflict of interest poses a threat to one or more of
the fundamental principles, including objectivity,
confidentiality or professional behaviour, that cannot be
eliminated or reduced to an acceptable level through the
application of safeguards, the professional accountant in
public practice should conclude that it is not appropriate to
accept a specific engagement or that resignation from one
or more conflicting engagements is required.
220.6 Where a professional accountant in public practice has
requested consent from a client to act for another party
(which may or may not be an existing client) in respect of a
matter where the respective interests are in conflict and that
consent has been refused by the client, then they must not
continue to act for one of the parties in the matter giving rise
to the conflict of interest.
Section 230
Second Opinions
230.1 Situations where a professional accountant in public practice
is asked to provide a second opinion on the application of
accounting, auditing, reporting or other standards or
principles to specific circumstances or transactions by or on
behalf of a company or an entity that is not an existing client
may give rise to threats to compliance with the fundamental
principles. For example, there may be a threat to
professional competence and due care in circumstances
where the second opinion is not based on the same set of
facts that were made available to the existing accountant, or
is based on inadequate evidence. The significance of the
threat will depend on the circumstances of the request and
all the other available facts and assumptions relevant to the
expression of a professional judgment.
230.2 When asked to provide such an opinion, a professional
accountant in public practice should evaluate the
significance of the threats and, if they are other than clearly
insignificant, safeguards should be considered and applied
as necessary to eliminate them or reduce them to an
acceptable level. Such safeguards may include seeking
client permission to contact the existing accountant,
describing the limitations surrounding any opinion in

46.
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24
communications with the client and providing the existing
accountant with a copy of the opinion.
230.3 If the company or entity seeking the opinion will not permit
communication with the existing accountant, a professional
accountant in public practice should consider whether,
taking all the circumstances into account, it is appropriate to
provide the opinion sought.
Section 240
Fees and Other Types of Remuneration
240.1 When entering into negotiations regarding professional
services, a professional accountant in public practice may
quote whatever fee deemed to be appropriate. The fact
that one professional accountant in public practice may
quote a fee lower than another is not in itself unethical.
Nevertheless, there may be threats to compliance with the
fundamental principles arising from the level of fees
quoted. For example, a self- interest threat to professional
competence and due care is created if the fee quoted is so
low that it may be difficult to perform the engagement in
accordance with applicable technical and professional
standards for that price. Professional accountants in public
practice, while quoting their fees, must ensure the
compliance of the Council guidelines issued from time to
time in this regard. Please refer Chapter 6 of the book.
240.2 The significance of such threats will depend on factors such
as the level of fee quoted and the services to which it
applies. In view of these potential threats, safeguards should
be considered and applied as necessary to eliminate them
or reduce them to an acceptable level. Safeguards which
may be adopted include:
Making the client aware of the terms of the
engagement and, in particular, the basis on which fees
are charged and which services are covered by the
quoted fee.
Assigning appropriate time and qualified staff to the
task.
240.3 The significance of such threats should be evaluated and, if
they are other than clearly insignificant, safeguards should
be considered and applied as necessary to eliminate or

47.
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25
reduce them to an acceptable level. Such safeguards may
include:
An advance written agreement with the client as to the
basis of remuneration.
Disclosure to intended users of the work performed by
the professional accountant in public practice and the
basis of remuneration
Quality control policies and procedures.
240.4 In certain circumstances, a professional accountant in public
practice may receive a referral fee or commission relating to
a client. For example, where the professional accountant in
public practice does not provide the specific service
required, a fee may be received for referring a continuing
client to another professional accountant in public practice
or other professionals recognized within the terms of the
Act.
240.5 A professional accountant in public practice may pay a
referral fee to obtain a client, for example, where the client
continues as a client of another professional accountant in
public practice or other professionals recognized within the
terms of the Act but requires specialist services not offered
by the existing accountant or other professionals recognized
within the terms of the Act. The payment of such a referral
fee may also create a self-interest threat to objectivity and
professional competence and due care.
240.6 A professional accountant in public practice should not pay
or receive a referral fee or commission, unless the
professional accountant in public practice has established
safeguards to eliminate the threats or reduce them to an
acceptable level. Such safeguards may include:
Disclosing to the client any arrangements to pay a
referral fee to another professional accountant or other
professionals for the work referred.
Disclosing to the client any arrangements to receive a
referral fee for referring the client to another
professional accountant in public practice or other
professionals.

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Section 250
Marketing Professional Services
250.1 When a professional accountant in public practice solicits
new work through advertising*
or other forms of marketing,
there may be potential threats to compliance with the
fundamental principles. For example, a self-interest threat to
compliance with the principle of professional behaviour is
created if services, achievements or products are marketed
in a way that is inconsistent with that principle.
250.2 A professional accountant in public practice should not bring
the profession into disrepute when marketing professional
services. The professional accountant in public practice
should be honest and truthful and should not:
Make exaggerated claims for services offers,
qualifications possessed or experience gained; or
Make disparaging references to unsubstantiated
comparisons to the work of another.
250.3 Professional accountants in public practice should, while
advertising their services, follow the Council guidelines for
advertisement issued from time to time.
Section 260
Gifts and Hospitality
260.1 A professional accountant in public practice, or a relative,
may be offered gifts and hospitality from a client. Such an
offer ordinarily gives rise to threats to compliance with the
fundamental principles. For example, self-interest threats to
objectivity may be created if a gift from a client is accepted;
intimidation threats to objectivity may result from the
possibility of such offers being made public.
260.2 The significance of such threats will depend on the nature,
value and intent behind the offer. Where gifts or hospitality,
which a reasonable and informed third party, having
knowledge of all relevant information, would consider clearly
insignificant, are made, a professional accountant in public
practice may conclude that the offer is made in the normal
*
See Definitions.

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course of business without the specific intent to influence
decision making or to obtain information. In such cases, the
professional accountant in public practice may generally
conclude that there is no significant threat to compliance
with the fundamental principles.
260.3 If evaluated threats are other than clearly insignificant,
safeguards should be considered and applied as necessary
to eliminate them or reduce them to an acceptable level.
When the threats cannot be eliminated or reduced to an
acceptable level through the application of safeguards, a
professional accountant in public practice should not accept
such an offer.
Section 270
Custody of Client Assets
270.1 A professional accountant in public practice should not
assume custody of client monies or other assets unless
permitted to do so by law and, if so, in compliance with any
additional legal duties imposed on a professional accountant
in public practice holding such assets.
270.2 The holding of client assets creates threats to compliance
with the fundamental principles; for example, there is a self-
interest threat to professional behaviour and may be a self
interest threat to objectivity arising from holding client
assets. To safeguard against such threats, a professional
accountant in public practice entrusted with money (or other
assets) belonging to others should:
(a) Keep such assets separately from personal or firm
assets;
(b) Use such assets only for the purpose for which they
are intended;
(c) At all times, be ready to account for those assets, and
any income, dividends or gains generated, to any
persons entitled to such accounting; and
(d) Comply with all relevant laws and regulations relevant
to the holding of and accounting for such assets.
270.3 In addition, professional accountants in public practice
should be aware of threats to compliance with the
fundamental principles through association with such

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assets, for example, if the assets were found to derive from
illegal activities, such as money laundering. As part of client
and engagement acceptance procedures for such services,
professional accountants in public practice should make
appropriate inquiries about the source of such assets and
should consider their legal and regulatory obligations. They
may also consider seeking legal advice.
Section 280
Objectivity–All Services
280.1 A professional accountant in public practice should consider
when providing any professional service whether there are
threats to compliance with the fundamental principle of
objectivity resulting from having interests in, or relationships
with, a client or directors, officers or employees. For
example, a familiarity threat to objectivity may be created
from a personal or business relationship.
280.2 A professional accountant in public practice who provides an
assurance service is required to be independent of the
assurance client. Independence of mind and in appearance
is necessary to enable the professional accountant in public
practice to express a conclusion, and be seen to express a
conclusion, without bias, conflict of interest or undue
influence of others. Section 290 provides specific guidance
on independence requirements for professional accountants
in public practice when performing an assurance
engagement.
280.3 The existence of threats to objectivity when providing any
professional service will depend upon the particular
circumstances of the engagement and the nature of the
work that the professional accountant in public practice is
performing.
280.4 A professional accountant in public practice should evaluate
the significance of identified threats and, if they are other
than clearly insignificant, safeguards should be considered
and applied as necessary to eliminate them or reduce them
to an acceptable level. Such safeguards may include:
Withdrawing from the engagement team.
Supervisory procedures.

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Terminating the financial or business relationship
giving rise to the threat.
Discussing the issue with higher levels of management
within the firm.
Discussing the issue with those charged with
governance of the client.
Section 290
Independence–Assurance Engagements
290.1 In the case of an assurance engagement it is in the public
interest and, therefore, required by this Code of Ethics, that
members of assurance teams,*
firms and, when applicable,
network firms* be independent of assurance clients.
290.2 Assurance engagements are designed to enhance intended
users’ degree of confidence about the outcome of the
evaluation or measurement of a subject matter against
criteria. The Framework for Assurance Engagements (the
Assurance Framework) issued by the Council of the Institute
describes the elements and objectives of an assurance
engagement, and identifies engagements to which
Standards on Auditing (SAs), Standards on Review
Engagements (SREs) and Standards on Assurance
Engagements (SAEs) apply. For a description of the
elements and objectives of an assurance engagement
reference should be made to the Assurance Framework.
290.3 As further explained in the Assurance Framework, in an
assurance engagement the professional accountant in
public practice expresses a conclusion designed to enhance
the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.
290.4 The outcome of the evaluation or measurement of a subject
matter is the information that results from applying the
criteria to the subject matter. The term “subject matter
information” is used to mean the outcome of the evaluation
or measurement of subject matter. For example:
The recognition, measurement, presentation and
*
See Definitions.

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disclosure represented in the financial statements*
(subject matter information) result from applying a
financial reporting framework for recognition,
measurement, presentation and disclosure, such as
Financial Reporting Standards, (criteria) to an entity’s
financial position, financial performance and cash flows
(subject matter).
An assertion about the effectiveness of internal control
(subject matter information) results from applying a
framework for evaluating the effectiveness of internal
control.
290.5 Assurance engagements may be assertion-based or direct
reporting. In either case they involve three separate parties:
a public accountant in public practice, a responsible party
and intended users.
290.6 In an assertion-based assurance engagement, which
includes a financial statement audit engagement*
, the
evaluation or measurement of the subject matter is
performed by the responsible party, and the subject matter
information is in the form of an assertion by the responsible
party that is made available to the intended users.
290.7 In a direct reporting assurance engagement the professional
accountant in public practice either directly performs the
evaluation or measurement of the subject matter, or obtains
a representation from the responsible party that has
performed the evaluation or measurement that is not
available to the intended users. The subject matter
information is provided to the intended users in the
assurance report.
290.8 Independence* requires:
Independence of Mind
The state of mind that permits the expression of a
conclusion without being affected by influences that
compromise professional judgment, allowing an individual to
act with integrity, and exercise objectivity and professional
skepticism.
*
See Definitions.

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Independence in Appearance
The avoidance of facts and circumstances that are so
significant that a reasonable and informed third party, having
knowledge of all relevant information, including safeguards
applied, would reasonably conclude a firm’s, or a member of
the assurance team’s, integrity, objectivity or professional
skepticism had been compromised.
290.9 The use of the word “independence” on its own may create
misunderstandings. Standing alone, the word may lead
observers to suppose that a person exercising professional
judgment ought to be free from all economic, financial and
other relationships. This is impossible, as every member of
society has relationships with others. Therefore, the
significance of economic, financial and other relationships
should also be evaluated in the light of what a reasonable
and informed third party having knowledge of all relevant
information would reasonably conclude to be unacceptable.
290.10 Many different circumstances, or combination of
circumstances, may be relevant and accordingly it is
impossible to define every situation that creates threats to
independence and specify the appropriate mitigating action
that should be taken. In addition, the nature of assurance
engagements may differ and consequently different threats
may exist, requiring the application of different safeguards.
A conceptual framework that requires firms and members of
assurance teams to identify, evaluate and address threats to
independence, rather than merely comply with a set of
specific rules which may be arbitrary, is, therefore, in the
public interest.
A Conceptual Approach to Independence
290.11 Members of assurance teams, firms and network firms are
required to apply the conceptual framework contained in
Section 100 to the particular circumstances under
consideration. In addition to identifying relationships
between the firm, network firms, members of the assurance
team and the assurance client, consideration should be
given to whether relationships between individuals outside
of the assurance team and the assurance client create
threats to independence.
290.12 The examples presented in this section are intended to

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illustrate the application of the conceptual framework and
are not intended to be, nor should they be interpreted as, an
exhaustive list of all circumstances that may create threats
to independence. Consequently, it is not sufficient for a
member of an assurance team, a firm or a network firm
merely to comply with the examples presented, rather they
should apply the framework to the particular circumstances
they face.
290.13 The nature of the threats to independence and the
applicable safeguards necessary to eliminate the threats or
reduce them to an acceptable level differ depending on the
characteristics of the individual assurance engagement:
whether it is a financial statement audit engagement or
another type of assurance engagement; and in the latter
case, the purpose, subject matter information and intended
users of the report. A firm should, therefore, evaluate the
relevant circumstances, the nature of the assurance
engagement and the threats to independence in deciding
whether it is appropriate to accept or continue an
engagement, as well as the nature of the safeguards
required and whether a particular individual should be a
member of the assurance team.
Assertion-based Assurance Engagements
Financial Statement Audit Engagements
290.14 Financial statement audit engagements are relevant to a
wide range of potential users; consequently, in addition to
independence of mind, independence in appearance is of
particular significance. Accordingly, for financial statement
audit clients, the members of the assurance team, the firm
and network firms are required to be independent of the
financial statement audit client. Such independence
requirements include prohibitions regarding certain
relationships between members of the assurance team and
directors, officers and employees of the client in a position to
exert direct and significant influence over the subject matter
information (the financial statements). Also, consideration
should be given to whether threats to independence are
created by relationships with employees of the client in a
position to exert direct and significant influence over the
subject matter (the financial position, financial performance
and cash flows).

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Other Assertion-based Assurance Engagements
290.15 In an assertion-based assurance engagement where the
client is not a financial statement audit client, the members
of the assurance team and the firm are required to be
independent of the assurance client (the responsible party,
which is responsible for the subject matter information and
may be responsible for the subject matter). Such
independence requirements include prohibitions regarding
certain relationships between members of the assurance
team and directors, officers and employees of the client in a
position to exert direct and significant influence over the
subject matter information. Also, consideration should be
given to whether threats to independence are created by
relationships with employees of the client in a position to
exert direct and significant influence over the subject matter
of the engagement. Consideration should also be given to
any threats that the firm has reason to believe may be
created by network firm interests and relationships.
290.16 In the majority of assertion-based assurance engagements,
that are not financial statement audit engagements, the
responsible party is responsible for the subject matter
information and the subject matter. However, in some
engagements the responsible party may not be responsible
for the subject matter. For example, when a professional
accountant in public practice is engaged to perform an
assurance engagement regarding a report that an
environmental consultant has prepared about a company’s
sustainability practices, for distribution to intended users, the
environmental consultant is the responsible party for the
subject matter information but the company is responsible
for the subject matter (the sustainability practices).
290.17 In those assertion-based assurance engagements that are
not financial statement audit engagements, where the
responsible party is responsible for the subject matter
information but not the subject matter the members of the
assurance team and the firm are required to be independent
of the party responsible for the subject matter information
(the assurance client). In addition, consideration should be
given to any threats the firm has reason to believe may be
created by interests and relationships between a member of
the assurance team, the firm, a network firm and the party
responsible for the subject matter.

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Direct Reporting Assurance Engagements
290.18 In a direct reporting assurance engagement the members of
the assurance team and the firm are required to be
independent of the assurance client (the party responsible
for the subject matter).
Restricted Use Reports
290.19 In the case of an assurance report in respect of a non-
financial statement audit client expressly restricted for use
by identified users, the users of the report are considered to
be knowledgeable as to the purpose, subject matter
information and limitations of the report through their
participation in establishing the nature and scope of the
firm’s instructions to deliver the services, including the
criteria against which the subject matter are to be evaluated
or measured. This knowledge and the enhanced ability of
the firm to communicate about safeguards with all users of
the report increase the effectiveness of safeguards to
independence in appearance. These circumstances may be
taken into account by the firm in evaluating the threats to
independence and considering the applicable safeguards
necessary to eliminate the threats or reduce them to an
acceptable level. At a minimum, it will be necessary to apply
the provisions of this section in evaluating the independence
of members of the assurance team and their relatives.
Further, if the firm had a material financial interest, whether
direct or indirect, in the assurance client, the self-interest
threat created would be so significant that no safeguard
could reduce the threat to an acceptable level. Limited
consideration of any threats created by network firm
interests and relationships may be sufficient.
Multiple Responsible Parties
290.20 In some assurance engagements, whether assertion-based
or direct reporting, that are not financial statement audit
engagements, there might be several responsible parties. In
such engagements, in determining whether it is necessary
to apply the provisions in this section to each responsible
party, the firm may take into account whether an interest or
relationship between the firm, or a member of the assurance
team, and a particular responsible party would create a
threat to independence that is other than clearly insignificant

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in the context of the subject matter information. This will take
into account factors such as:
The materiality of the subject matter information (or the
subject matter) for which the particular responsible
party is responsible; and
The degree of public interest associated with the
engagement.
If the firm determines that the threat to independence
created by any such interest or relationship with a particular
responsible party would be clearly insignificant it may not be
necessary to apply all of the provisions of this section to that
responsible party.
Other Considerations
290.21 The threats and safeguards identified in this section are
generally discussed in the context of interests or
relationships between the firm, network firms, members of
the assurance team and the assurance client. In the case of
a financial statement audit client that is a listed entity, the
firm and any network firms are required to consider the
interests and relationships that involve that client’s related
entities. Ideally those entities and the interests and
relationships should be identified in advance. For all other
assurance clients, when the assurance team has reason to
believe that a related entity*
of such an assurance client is
relevant to the evaluation of the firm’s independence of the
client, the assurance team should consider that related
entity when evaluating independence and applying
appropriate safeguards.
290.22 The evaluation of threats to independence and subsequent
action should be supported by evidence obtained before
accepting the engagement and while it is being performed.
The obligation to make such an evaluation and take action
arises when a firm, a network firm or a member of the
assurance team knows, or could reasonably be expected to
know, of circumstances or relationships that might
compromise independence. There may be occasions when
the firm, a network firm or an individual inadvertently violates
this section. If such an inadvertent violation occurs, it would
*
See Definitions.

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generally not compromise independence with respect to an
assurance client provided the firm has appropriate quality
control policies and procedures in place to promote
independence and, once discovered, the violation is
corrected promptly and any necessary safeguards are
applied.
290.23 Throughout this section, reference is made to significant and
clearly insignificant threats in the evaluation of
independence. In considering the significance of any
particular matter, qualitative as well as quantitative factors
should be taken into account. A matter should be
considered clearly insignificant only if it is deemed to be
both trivial and inconsequential.
Objective and Structure of this Section
290.24 The objective of this section is to assist firms and members
of assurance teams in:
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly
insignificant; and
(c) In cases when the threats are not clearly insignificant,
identifying and applying appropriate safeguards to
eliminate or reduce the threats to an acceptable level.
Consideration should always be given to what a reasonable
and informed third party having knowledge of all relevant
information, including safeguards applied, would reasonably
conclude to be unacceptable. In situations when no
safeguards are available to reduce the threat to an
acceptable level, the only possible actions are to eliminate
the activities or interest creating the threat, or to refuse to
accept or continue the assurance engagement.
290.25 This section concludes with some examples of how this
conceptual approach to independence is to be applied to
specific circumstances and relationships. The examples
discuss threats to independence that may be created by
specific circumstances and relationships (paragraphs
290.100 onwards). Professional judgment is used to
determine the appropriate safeguards to eliminate threats to
independence or to reduce them to an acceptable level. In
certain examples, the threats to independence are so

59.
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significant the only possible actions are to eliminate the
activities or interest creating the threat, or to refuse to
accept or continue the assurance engagement. In other
examples, the threat can be eliminated or reduced to an
acceptable level by the application of safeguards. The
examples are not intended to be all-inclusive.
290.26 Certain examples in this section indicate how the framework
is to be applied to a financial statements audit engagement
for a listed entity. Since it is not differentiated between listed
entities and other entities, the examples that relate to
financial statement audit engagements for listed entities
should be considered to apply to all financial statement audit
engagements.
290.27 When threats to independence that are not clearly
insignificant are identified, and the firm decides to accept or
continue the assurance engagement, the decision should be
documented. The documentation should include a
description of the threats identified and the safeguards
applied to eliminate or reduce the threats to an acceptable
level.
290.28 The evaluation of the significance of any threats to
independence and the safeguards necessary to reduce any
threats to an acceptable level, takes into account the public
interest. Certain entities may be of significant public interest
because, as a result of their business, their size or their
corporate status they have a wide range of stakeholders.
Examples of such entities may include listed companies,
credit institutions, insurance companies, and pension funds.
Because of the strong public interest in the financial
statements of listed entities, certain paragraphs in this
section deal with additional matters that are relevant to the
financial statement audit of listed entities. Consideration
should be given to the application of the framework in
relation to the financial statement audit of listed entities to
other financial statement audit clients that may be of
significant public interest.
290.29 Audit committees can have an important corporate
governance role when they are independent of client
management and can assist the Board of Directors in
satisfying themselves that a firm is independent in carrying

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out its audit role. There should be regular communications
between the firm and the audit committee (or other
governance body if there is no audit committee) of listed
entities regarding relationships and other matters that might,
in the firm’s opinion, reasonably be thought to bear on
independence.
290.30 Firms should establish policies and procedures relating to
independence communications with audit committees, or
others charged with governance of the client. In the case of
the financial statement audit of listed entities, the firm should
communicate orally and in writing at least annually, all
relationships and other matters between the firm, network
firms and the financial statement audit client that in the firm’s
professional judgment may reasonably be thought to bear
on independence. Matters to be communicated will vary in
each circumstance and should be decided by the firm, but
should generally address the relevant matters set out in this
section.
Engagement Period
290.31 The members of the assurance team and the firm should be
independent of the assurance client during the period of the
assurance engagement. The period of the engagement
starts when the assurance team begins to perform
assurance services and ends when the assurance report is
issued, except when the assurance engagement is of a
recurring nature. If the assurance engagement is expected
to recur, the period of the assurance engagement ends with
the notification by either party that the professional
relationship has terminated or the issuance of the final
assurance report, whichever is later.
290.32 In the case of a financial statement audit engagement, the
engagement period includes the period covered by the
financial statements reported on by the firm. When an entity
becomes a financial statement audit client during or after the
period covered by the financial statements that the firm will
report on, the firm should consider whether any threats to
independence may be created by:
Financial or business relationships with the audit client
during or after the period covered by the financial

61.
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statements, but prior to the acceptance of the financial
statement audit engagement; or
Previous services provided to the audit client.
Similarly, in the case of an assurance engagement that is
not a financial statement audit engagement, the firm should
consider whether any financial or business relationships or
previous services may create threats to independence.
290.33 If a non-assurance service was provided to the financial
statement audit client during or after the period covered by
the financial statements but before the commencement of
professional services in connection with the financial
statement audit and the service would be prohibited during
the period of the audit engagement, consideration should be
given to the threats to independence, if any, arising from the
service. If the threat is other than clearly insignificant,
safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. Such safeguards
may include:
Discussing independence issues related to the
provision of the non-assurance service with those
charged with governance of the client, such as the
audit committee;
Obtaining the client’s acknowledgement of
responsibility for the results of the non-assurance
service;
Precluding personnel who provided the non-assurance
service from participating in the financial statement
audit engagement; and
Engaging another firm to review the results of the non-
assurance service or having another firm re-perform
the non-assurance service to the extent necessary to
enable it to take responsibility for the service.
290.34 A non-assurance service provided to a non-listed financial
statement audit client will not impair the firm’s independence
when the client becomes a listed entity provided:
(a) The previous non-assurance service was permissible
under this section for non- listed financial statement
audit clients;

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(b) The service will be terminated within a reasonable
period of time of the client becoming a listed entity, if
they are not permissible under this section for financial
statement audit clients that are listed entities; and
(c) The firm has implemented appropriate safeguards to
eliminate any threats to independence arising from the
previous service or reduce them to an acceptable level.
290.35 The professional accountant in public practice should
ensure the compliance of “Guidance Note on Independence
of Auditors” issued by the Council of the Institute from time
to time.
APPLICATION OF FRAMEWORK TO
SPECIFIC SITUATIONS
Introduction
290.100 The following examples describe specific circumstances and
relationships that may create threats to independence. The
examples describe the potential threats created and the
safeguards that may be appropriate to eliminate the threats
or reduce them to an acceptable level in each circumstance.
The examples are not all inclusive. In practice, the firm,
network firms and the members of the assurance team will
be required to assess the implications of similar, but
different, circumstances and relationships and to determine
whether safeguards, including the safeguards in paragraphs
200.12 to 200.15 can be applied satisfactorily to address the
threats to independence.
290.101 Some of the examples deal with financial statement audit
clients while others deal with assurance engagements for
clients that are not financial statement audit clients. The
examples illustrate how safeguards should be applied to
fulfill the requirement for the members of the assurance
team, the firm and network firms to be independent of a
financial statement audit client, and for the members of the
assurance team and the firm to be independent of an
assurance client that is not a financial statement audit client.
The examples do not include assurance reports to a non-
financial statement audit client expressly restricted for use

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by identified users. As stated in paragraph 290.19 for such
engagements, members of the assurance team and their
relatives are required to be independent of the assurance
client. Further, the firm should not have a material financial
interest, direct or indirect, in the assurance client.
290.102 The examples illustrate how the framework applies to
financial statement audit clients and other assurance clients.
The examples should be read in conjunction with
paragraphs 290.20 which explain that, in the majority of
assurance engagements, there is one responsible party and
that responsible party comprises the assurance client.
However, in some assurance engagements there are two
responsible parties. In such circumstances, consideration
should be given to any threats the firm has reason to believe
may be created by interests and relationships between a
member of the assurance team, the firm, a network firm and
the party responsible for the subject matter.
Financial Interests
290.103 A financial interest in an assurance client may create a self-
interest threat. In evaluating the significance of the threat,
and the appropriate safeguards to be applied to eliminate
the threat or reduce it to an acceptable level, it is necessary
to examine the nature of the financial interest. This includes
an evaluation of the role of the person holding the financial
interest, the materiality of the financial interest and the type
of financial interest (direct or indirect).
290.104 When evaluating the type of financial interest, consideration
should be given to the fact that financial interests range from
those where the individual has no control over the
investment vehicle or the financial interest held (e.g., a
mutual fund, unit trust or similar intermediary vehicle) to
those where the individual has control over the financial
interest (e.g., as a trustee) or is able to influence investment
decisions. In evaluating the significance of any threat to
independence, it is important to consider the degree of
control or influence that can be exercised over the
intermediary, the financial interest held, or its investment
strategy. When control exists, the financial interest should
be considered direct. Conversely, when the holder of the
financial interest has no ability to exercise such control the
financial interest should be considered indirect.

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Provisions Applicable to All Assurance Clients
290.105 If a member of the assurance team, or his relative has a
direct financial interest*, or a material indirect financial
interest*
, in the assurance client, the self-interest threat
created would be so significant the only safeguards
available to eliminate the threat or reduce it to an acceptable
level would be to:
(a) Dispose of the direct financial interest prior to the
individual becoming a member of the assurance team;
(b) Dispose of the indirect financial interest in total or
dispose of a sufficient amount of it so that the remaining
interest is no longer material prior to the individual
becoming a member of the assurance team; or
(c) Remove the member of the assurance team from the
assurance engagement.
290.106 If a member of the assurance team, or his relative receives,
by way of, for example, an inheritance, gift or, as a result of
a merger, a direct financial interest or a material indirect
financial interest in the assurance client, a self-interest
threat would be created. The following safeguards should be
applied to eliminate the threat or reduce it to an acceptable
level:
(a) Disposing of the financial interest at the earliest
practical date; or
(b) Removing the member of the assurance team from the
assurance engagement.
During the period prior to disposal of the financial interest or
the removal of the individual from the assurance team,
consideration should be given to whether additional
safeguards are necessary to reduce the threat to an
acceptable level. Such safeguards might include:
Discussing the matter with those charged with
governance, such as the audit committee; or
Involving an additional professional accountant to
review the work done, or otherwise advise as
necessary.
*
See Definitions.

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290.107 When a member of the assurance team knows that his or
her relative has a direct financial interest or a material
indirect financial interest in the assurance client, a self-
interest threat may be created. In evaluating the significance
of any threat, consideration should be given to the nature of
the relationship between the member of the assurance team
and the relative and the materiality of the financial interest.
Once the significance of the threat has been evaluated,
safeguards should be considered and applied as necessary.
Such safeguards might include:
The relative disposing of all or a sufficient portion of the
financial interest at the earliest practical date;
Discussing the matter with those charged with
governance, such as the audit committee;
Involving an additional professional accountant who did
not take part in the assurance engagement to review
the work done by the member of the assurance team
with the relative or otherwise advise as necessary; or
Removing the individual from the assurance
engagement.
290.108 When a firm or a member of the assurance team holds a
direct financial interest or a material indirect financial interest
in the assurance client as a trustee, a self-interest threat
may be created by the possible influence of the trust over
the assurance client. Accordingly, such an interest should
only be held when:
(a) The member of the assurance team, a relative of the
member of the assurance team, and the firm are not
beneficiaries of the trust;
(b) The interest held by the trust in the assurance client is
not material to the trust;
(c) The trust is not able to exercise significant influence
over the assurance client; and
(d) The member of the assurance team or the firm does
not have significant influence over any investment
decision involving a financial interest in the assurance
client.

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290.109 Consideration should be given to whether a self-interest
threat may be created by the financial interests of individuals
outside of the assurance team and their relatives. Such
individuals would include:
Partners, and their relatives, who are not members of
the assurance team;
Partners and managerial employees who provide non-
assurance services to the assurance client; and
Individuals who have a personal relationship with a
member of the assurance team.
Whether the interests held by such individuals may create a
self-interest threat will depend upon factors such as:
The firm’s organizational, operating and reporting
structure; and
The nature of the relationship between the individual
and the member of the assurance team.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Where appropriate, policies to restrict people from
holding such interests;
Discussing the matter with those charged with
governance, such as the audit committee; or
Involving an additional professional accountant who did
not take part in the assurance engagement to review
the work done or otherwise advise as necessary.
290.110 An inadvertent violation of this section as it relates to a
financial interest in an assurance client would not impair the
independence of the firm, the network firm or a member of
the assurance team when:
(a) The firm, and the network firm, have established
policies and procedures that require all professionals to
report promptly to the firm any breaches resulting from
the purchase, inheritance or other acquisition of a
financial interest in the assurance client;

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(b) The firm, and the network firm, promptly notify the
professional that the financial interest should be
disposed of; and
(c) The disposal occurs at the earliest practical date after
identification of the issue, or the professional is
removed from the assurance team.
290.111 When an inadvertent violation of this section relating to a
financial interest in an assurance client has occurred, the
firm should consider whether any safeguards should be
applied. Such safeguards might include:
Involving an additional professional accountant who did
not take part in the assurance engagement to review
the work done by the member of the assurance team;
or
Excluding the individual from any substantive decision-
making concerning the assurance engagement.
Provisions Applicable to Financial Statement Audit
Clients
290.112 If a firm, or a network firm, has a direct financial interest in a
financial statement audit client of the firm the self-interest
threat created would be so significant no safeguard could
reduce the threat to an acceptable level. Consequently,
disposal of the financial interest would be the only action
appropriate to permit the firm to perform the engagement.
290.113 If a firm, or a network firm, has a material indirect financial
interest in a financial statement audit client of the firm a self-
interest threat is also created. The only actions appropriate
to permit the firm to perform the engagement would be for
the firm, or the network firm, either to dispose of the indirect
interest in total or to dispose of a sufficient amount of it so
that the remaining interest is no longer material.
290.114 If a firm, or a network firm, has a material financial interest in
an entity that has a controlling interest in a financial
statement audit client, the self-interest threat created would
be so significant no safeguard could reduce the threat to an
acceptable level. The only actions appropriate to permit the
firm to perform the engagement would be for the firm, or the
network firm, either to dispose of the financial interest in

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total or to dispose of a sufficient amount of it so that the
remaining interest is no longer material.
290.115 If the retirement benefit plan of a firm, or network firm, has a
financial interest in a financial statement audit client a self-
interest threat may be created. Accordingly, the significance
of any such threat created should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to eliminate the
threat or reduce it to an acceptable level.
290.116 If other partners, including partners who do not perform
assurance engagements, or their relative(s), in the office*
in
which the engagement partner* practices in connection
with the financial statement audit hold a direct financial
interest or a material indirect financial interest in that audit
client, the self-interest threat created would be so significant
no safeguard could reduce the threat to an acceptable level.
Accordingly, such partners or their relative(s) should not
hold any such financial interests in such an audit client.
290.117 The office in which the engagement partner practices in
connection with the financial statement audit is not
necessarily the office to which that partner is assigned.
Accordingly, when the engagement partner is located in a
different office from that of the other members of the
assurance team, judgment should be used to determine in
which office the partner practices in connection with that
audit.
290.118 If other partners and managerial employees who provide
non-assurance services to the financial statement audit
client, except those whose involvement is clearly
insignificant, or their relative(s), hold a direct financial
interest or a material indirect financial interest in the audit
client, the self-interest threat created would be so significant
no safeguard could reduce the threat to an acceptable level.
Accordingly, such personnel or their relative(s) should not
hold any such financial interests in such an audit client.
290.119 A financial interest in a financial statement audit client that is
held by a relative of (a) a partner located in the office in
which the engagement partner practices in connection with
*
See Definitions.

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the audit, or (b) a partner or managerial employee who
provides non-assurance services to the audit client is not
considered to create an unacceptable threat provided it is
received as a result of their employment rights (e.g., pension
rights or share options) and, where necessary, appropriate
safeguards are applied to reduce any threat to
independence to an acceptable level.
290.120 A self-interest threat may be created if the firm, or the
network firm, or a member of the assurance team has an
interest in an entity and a financial statement audit client, or
a director, officer or controlling owner thereof also has an
investment in that entity. Independence is not compromised
with respect to the audit client if the respective interests of
the firm, the network firm, or member of the assurance
team, and the audit client, or director, officer or controlling
owner thereof are both immaterial and the audit client
cannot exercise significant influence over the entity. If an
interest is material, to either the firm, the network firm or the
audit client, and the audit client can exercise significant
influence over the entity, no safeguards are available to
reduce the threat to an acceptable level and the firm, or the
network firm, should either dispose of the interest or decline
the audit engagement. Any member of the assurance team
with such a material interest should either:
(a) Dispose of the interest;
(b) Dispose of a sufficient amount of the interest so that
the remaining interest is no longer material; or
(c) Withdraw from the audit.
Provisions Applicable to Non-Financial Statement
Audit Assurance Clients
290.121 If a firm has a direct financial interest in an assurance client
that is not a financial statement audit client the self-interest
threat created would be so significant no safeguard could
reduce the threat to an acceptable level. Consequently,
disposal of the financial interest would be the only action
appropriate to permit the firm to perform the engagement.
290.122 If a firm has a material indirect financial interest in an
assurance client that is not a financial statement audit client
a self-interest threat is also created. The only action

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appropriate to permit the firm to perform the engagement
would be for the firm to either dispose of the indirect interest
in total or to dispose of a sufficient amount of it so that the
remaining interest is no longer material.
290.123 If a firm has a material financial interest in an entity that has
a controlling interest in an assurance client that is not a
financial statement audit client, the self-interest threat
created would be so significant no safeguard could reduce
the threat to an acceptable level. The only action
appropriate to permit the firm to perform the engagement
would be for the firm either to dispose of the financial
interest in total or to dispose of a sufficient amount of it so
that the remaining interest is no longer material.
290.124 When a restricted use report for an assurance engagement
that is not a financial statement audit engagement is issued,
exceptions to the provisions in paragraphs 290.105 to
290.109 and 290.121 to 290.123 are set out in 290.19.
Loans and Guarantees
290.125 A loan, or a guarantee of a loan, to the professional
accountant/any partner of the firm/firm from an assurance
client that is a bank or a similar institution, would not create
a threat to independence provided the loan, or guarantee, is
made within the terms of statutory provisions and guidelines/
guidance notes issued by the Council of the Institute from
time to time in this regard.. If the loan amount is exceeding
the limit specified by the statute to the assurance client or
the firm, it may be possible, through the application of
safeguards by way of repayment of loan, to reduce the self-
interest threat created to an acceptable level. Such
safeguards might include replacing the other professional
accountant from outside the firm, or network firm, to
undertake the work.
290.126 Subject to the provisions of Section 290.125 above and the
RBI Guidelines issued from time to time in regard to the
Banking Companies, a loan, or a guarantee of a loan, from
an assurance client that is a bank or a similar institution, to a
member of the assurance team or their relative(s) would not
create a threat to independence provided the loan, or
guarantee, is made under normal lending procedures, terms
and requirements. Examples of such loans include home

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mortgages, bank overdrafts, car loans and credit card
balances.
290.127 Similarly, deposits made by, or brokerage accounts of, a
firm or a member of the assurance team with an assurance
client that is a bank, broker or similar institution would not
create a threat to independence provided the deposit or
account is held under normal commercial terms.
290.128 If the firm, or a member of the assurance team, makes a
loan to an assurance client, that is not a bank or similar
institution, or guarantees such an assurance client’s
borrowing, the self-interest threat created would be so
significant no safeguard could reduce the threat to an
acceptable level, unless the loan or guarantee is immaterial
to both the firm or the member of the assurance team and
the assurance client.
290.129 Similarly, if the firm or a member of the assurance team
accepts a loan from, or has borrowing guaranteed by, an
assurance client that is not a bank or similar institution, the
self-interest threat created would be so significant no
safeguard could reduce the threat to an acceptable level,
unless the loan or guarantee is within the limits specified by
the statute and guidelines/guidance notes issued by the
Council from time to time to both the firm or the member of
the assurance team and the assurance client.
290.130 The examples in paragraphs 290.125 to 290.129 relate to
loans and guarantees between the firm and an assurance
client. In the case of a financial statement audit
engagement, the provisions should be applied to the firm, all
network firms and the audit client.
Close Business Relationships With Assurance
Clients
290.131 A close business relationship between a firm or a member of
the assurance team and the assurance client or its
management, or between the firm, a network firm and a
financial statement audit client, will involve a commercial or
common financial interest and may create self-interest and
intimidation threats. The following are examples of such
relationships:
Having a material financial interest in a joint venture

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with the assurance client or a controlling owner,
director, officer or other individual who performs senior
managerial functions for that client.
Arrangements to combine one or more services or
products of the firm with one or more services or
products of the assurance client and to market the
package with reference to both parties.
In the case of a financial statement audit client, unless the
financial interest is immaterial and the relationship is clearly
insignificant to the firm, the network firm and the audit client,
no safeguards could reduce the threat to an acceptable
level. In the case of an assurance client that is not a
financial statement audit client, unless the financial interest
is immaterial and the relationship is clearly insignificant to
the firm and the assurance client, no safeguards could
reduce the threat to an acceptable level. Consequently, in
both these circumstances the only possible courses of
action are to:
(a) Terminate the business relationship;
(b) Reduce the magnitude of the relationship so that the
financial interest is immaterial and the relationship is
clearly insignificant; or
(c) Refuse to perform the assurance engagement.
Unless any such financial interest is immaterial and the
relationship is clearly insignificant to the member of the
assurance team, the only appropriate safeguard would be to
remove the individual from the assurance team.
290.132 In the case of a financial statement audit client, business
relationships involving an interest held by the firm, a network
firm or a member of the assurance team or their relative(s)
in a closely held entity when the audit client or a director or
officer of the audit client, or any group thereof, also has an
interest in that entity, do not create threats to independence
provided:
(a) The relationship is clearly insignificant to the firm, the
network firm and the audit client;
(b) The interest held is immaterial to the investor, or group
of investors; and

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(c) The interest does not give the investor, or group of
investors, the ability to control the closely held entity.
290.133 The purchase of goods and services from an assurance
client by the firm (or from a financial statement audit client
by a network firm) or a member of the assurance team
would not generally create a threat to independence
providing the transaction is in the normal course of business
and on an arm’s length basis. However, such transactions
should not be of a nature or magnitude so as to create a
self-interest threat. If the threat created is other than clearly
insignificant, safeguards should be considered and applied
as necessary to reduce the threat to an acceptable level.
Such safeguards might include:
Eliminating or reducing the magnitude of the
transaction;
Removing the individual from the assurance team; or
Discussing the issue with those charged with
governance, such as the audit committee.
Personal Relationships
290.134 Relationships between a member of the assurance team
and a director, an officer or certain employees, depending
on their role, of the assurance client, may create self-
interest, familiarity or intimidation threats. It is impracticable
to attempt to describe in detail the significance of the threats
that such relationships may create. The significance will
depend upon a number of factors including the individual’s
responsibilities on the assurance engagement, the
relationship and role of the relative or other individual within
the assurance client. Consequently, there is a wide
spectrum of circumstances that will need to be evaluated
and safeguards to be applied to reduce the threat to an
acceptable level.
290.135 When a relative of a member of the assurance team is a
director, an officer or an employee of the assurance client in
a position to exert direct and significant influence over the
subject matter information of the assurance engagement, or
was in such a position during any period covered by the
engagement, the threats to independence can only be
reduced to an acceptable level by removing the individual
from the assurance team. The relationship is such that no

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other safeguard could reduce the threat to independence to
an acceptable level. If application of this safeguard is not
used, the only course of action is to withdraw from the
assurance engagement. For example, in the case of an
audit of financial statements, if the spouse of a member of
the assurance team is an employee in a position to exert
direct and significant influence over the preparation of the
audit client’s accounting records or financial statements, the
threat to independence could only be reduced to an
acceptable level by removing the individual from the
assurance team.
290.136 When a relative of a member of the assurance team is an
employee in a position to exert direct and significant
influence over the subject matter of the engagement, threats
to independence may be created. The significance of the
threats will depend on factors such as:
The position the relative holds with the client; and
The role of the professional on the assurance team.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Removing the individual from the assurance team;
Where possible, structuring the responsibilities of the
assurance team so that the professional does not deal
with matters that are within the responsibility of the
relative; or
Policies and procedures to empower staff to
communicate to senior levels within the firm any issue
of independence and objectivity that concerns them.
290.137 When a relative of a member of the assurance team is a
director, an officer, or an employee of the assurance client in
a position to exert direct and significant influence over the
subject matter information of the assurance engagement,
threats to independence may be created. The significance of
the threats will depend on factors such as:
The position the relative holds with the client; and
The role of the professional on the assurance team.

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The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Removing the individual from the assurance team;
Where possible, structuring the responsibilities of the
assurance team so that the professional does not deal
with matters that are within the responsibility of the
relative; or
Policies and procedures to empower staff to
communicate to senior levels within the firm any issue
of independence and objectivity that concerns them.
290.138 In addition, self-interest, familiarity or intimidation threats
may be created when a person who is other than a relative
of a member of the assurance team has a relationship with
the member of the assurance team and is a director, an
officer or an employee of the assurance client in a position
to exert direct and significant influence over the subject
matter information of the assurance engagement. Therefore,
members of the assurance team are responsible for
identifying any such persons and for consulting in
accordance with firm procedures. The evaluation of the
significance of any threat created and the safeguards
appropriate to eliminate the threat or reduce it to an
acceptable level will include considering matters such as the
relationship and the role of the individual within the
assurance client.
290.139 Consideration should be given to whether self-interest,
familiarity or intimidation threats may be created by a
relationship between a partner or employee of the firm who
is not a member of the assurance team and a director, an
officer or an employee of the assurance client in a position
to exert direct and significant influence over the subject
matter information of the assurance engagement. Therefore
partners and employees of the firm are responsible for
identifying any such relationships and for consulting in
accordance with firm procedures. The evaluation of the
significance of any threat created and the safeguards
appropriate to eliminate the threat or reduce it to an
acceptable level will include considering matters such as the

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relationship, the interaction of the firm professional with the
assurance team, the position held within the firm, and the
role of the individual within the assurance client.
290.140 An inadvertent violation of this section as it relates to
relationships would not impair the independence of a firm or
a member of the assurance team when:
(a) The firm has established policies and procedures that
require all professionals to report promptly to the firm
any breaches resulting from changes in the
employment status of their relatives or other personal
relationships that create threats to independence;
(b) Either the responsibilities of the assurance team are re-
structured so that the professional does not deal with
matters that are within the responsibility of the person
with whom he or she is related or has a personal
relationship, or, if this is not possible, the firm promptly
removes the professional from the assurance
engagement; and
(c) Additional care is given to reviewing the work of the
professional.
290.141 When an inadvertent violation of this section relating to
relationships has occurred, the firm should consider whether
any safeguards should be applied. Such safeguards might
include:
Involving an additional professional accountant who did
not take part in the assurance engagement to review
the work done by the member of the assurance team;
or
Excluding the individual from any substantive decision-
making concerning the assurance engagement.
Employment with Assurance Clients
290.142 A firm or a member of the assurance team’s independence
may be threatened if a director, an officer or an employee of
the assurance client in a position to exert direct and
significant influence over the subject matter information of
the assurance engagement has been a member of the
assurance team or partner of the firm. Such circumstances

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may create self-interest, familiarity and intimidation threats
particularly when significant connections remain between
the individual and his or her former firm. Similarly, a member
of the assurance team’s independence may be threatened
when an individual participates in the assurance
engagement knowing, or having reason to believe, that he
or she is to, or may, join the assurance client some time in
the future.
290.143 If a member of the assurance team, partner or former
partner of the firm has joined the assurance client, the
significance of the self-interest, familiarity or intimidation
threats created will depend upon the following factors:
(a) The position the individual has taken at the assurance
client.
(b) The amount of any involvement the individual will have
with the assurance team.
(c) The length of time that has passed since the individual
was a member of the assurance team or firm.
(d) The former position of the individual within the
assurance team or firm.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Considering the appropriateness or necessity of
modifying the assurance plan for the assurance
engagement;
Assigning an assurance team to the subsequent
assurance engagement that is of sufficient experience
in relation to the individual who has joined the
assurance client;
Involving an additional professional accountant who
was not a member of the assurance team to review the
work done or otherwise advise as necessary; or
Quality control review of the assurance engagement.
In all cases, all of the following safeguards are necessary to
reduce the threat to an acceptable level:
(a) The individual concerned is not entitled to any benefits

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or payments from the firm unless these are made in
accordance with fixed pre-determined arrangements. In
addition, any amount owed to the individual should not
be of such significance to threaten the firm’s
independence.
(b) The individual does not continue to participate or
appear to participate in the firm’s business or
professional activities.
290.144 A self-interest threat is created when a member of the
assurance team participates in the assurance engagement
while knowing, or having reason to believe, that he or she is
to, or may, join the assurance client some time in the future.
This threat can be reduced to an acceptable level by the
application of all of the following safeguards:
(a) Policies and procedures to require the individual to
notify the firm when entering serious employment
negotiations with the assurance client.
(b) Removal of the individual from the assurance
engagement.
In addition, consideration should be given to performing an
independent review of any significant judgments made by
that individual while on the engagement.
Recent Service with Assurance Clients
290.145 To have a former officer, director or employee of the
assurance client serve as a member of the assurance team
may create self-interest, self-review and familiarity threats.
This would be particularly true when a member of the
assurance team has to report on, for example, subject
matter information he or she had prepared or elements of
the financial statements he or she had valued while with the
assurance client.
290.146 If, during the period covered by the assurance report, a
member of the assurance team had served as an officer or
director of the assurance client, or had been an employee in
a position to exert direct and significant influence over the
subject matter information of the assurance engagement,
the threat created would be so significant no safeguard
could reduce the threat to an acceptable level.

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Consequently, such individuals should not be assigned to
the assurance team.
290.147 If, prior to the period covered by the assurance report, a
member of the assurance team had served as an officer or
director of the assurance client, or had been an employee in
a position to exert direct and significant influence over the
subject matter information of the assurance engagement,
this may create self-interest, self-review and familiarity
threats. For example, such threats would be created if a
decision made or work performed by the individual in the
prior period, while employed by the assurance client, is to be
evaluated in the current period as part of the current
assurance engagement. The significance of the threats will
depend upon factors such as:
The position the individual held with the assurance
client;
The length of time that has passed since the individual
left the assurance client; and
The role the individual plays on the assurance team.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Involving an additional professional accountant to
review the work done by the individual as part of the
assurance team or otherwise advise as necessary; or
Discussing the issue with those charged with
governance, such as the audit committee.
Serving as an Officer or Director on the Board of
Assurance Clients
290.148 No person who is an officer or employee of an entity shall be
qualified for appointment as auditor of that entity
LONG ASSOCIATION OF SENIOR PERSONNEL
WITH ASSURANCE CLIENTS
General Provisions
290.149 Using the same senior personnel on an assurance
engagement over a long period of time may create a

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familiarity threat. The significance of the threat will depend
upon factors such as:
The length of time that the individual has been a
member of the assurance team;
The role of the individual on the assurance team;
The structure of the firm; and
The nature of the assurance engagement.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied to reduce the threat to an
acceptable level. Such safeguards might include:
Rotating the senior personnel off the assurance team;
Involving an additional professional accountant who
was not a member of the assurance team to review the
work done by the senior personnel or otherwise advise
as necessary; or
Independent internal quality reviews.
Financial Statement Audit Clients that are Listed
Entities
290.150 Using the same engagement partner or the same individual
responsible for the engagement quality control review*
on
a financial statement audit over a prolonged period may
create a familiarity threat. This threat is particularly relevant
in the context of the financial statement audit of a listed
entity and safeguards should be applied in such situations to
reduce such threat to an acceptable level. Accordingly in
respect of the financial statement audit of listed entities:
(a) The engagement partner and the individual responsible
for the engagement quality control review should be
rotated after serving in either capacity, or a
combination thereof, for a pre-defined period, normally
no more than seven years; and
(b) Such an individual rotating after a pre-defined period
should not participate in the audit engagement until a
further period of time, normally two years, has elapsed.
*
See Definitions.

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290.151 When a financial statement audit client becomes a listed
entity the length of time the engagement partner or the
individual responsible for the engagement quality control
review has served the audit client in that capacity should be
considered in determining when the individual should be
rotated. However, the person may continue to serve as the
engagement partner or as the individual responsible for the
engagement quality control review for two additional years
before rotating off the engagement.
290.152 While the engagement partner and the individual
responsible for the engagement quality control review
should be rotated after such a pre-defined period, some
degree of flexibility over timing of rotation may be necessary
in certain circumstances. Examples of such circumstances
include:
Situations when the person’s continuity is especially
important to the financial statement audit client, for
example, when there will be major changes to the audit
client’s structure that would otherwise coincide with the
rotation of the person; and
Situations when, due to the size of the firm, rotation is
not possible or does not constitute an appropriate
safeguard.
In all such circumstances when the person is not rotated
after such a pre-defined period equivalent safeguards
should be applied to reduce any threats to an acceptable
level.
290.153 When a firm has only a few people with the necessary
knowledge and experience to serve as engagement partner
or individual responsible for the engagement quality control
review on a financial statement audit client that is a listed
entity, rotation may not be an appropriate safeguard. In
these circumstances the firm should apply other safeguards
to reduce the threat to an acceptable level. Such safeguards
would include involving an additional professional
accountant who was not otherwise associated with the
assurance team to review the work done or otherwise
advise as necessary. This individual could be someone from
outside the firm or someone within the firm who was not
otherwise associated with the assurance team.

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Provision of Non-assurance Services to Assurance
Clients
290.154 Firms have traditionally provided to their assurance clients a
range of non-assurance services that are consistent with
their skills and expertise. Assurance clients value the
benefits that derive from having these firms, which have a
good understanding of the business, bring their knowledge
and skill to bear in other areas. Furthermore, the provision of
such non-assurance services will often result in the
assurance team obtaining information regarding the
assurance client’s business and operations that is helpful in
relation to the assurance engagement. The greater the
knowledge of the assurance client’s business, the better the
assurance team will understand the assurance client’s
procedures and controls, and the business and financial
risks that it faces. The provision of non-assurance services
may, however, create threats to the independence of the
firm, a network firm or the members of the assurance team,
particularly with respect to perceived threats to
independence. Consequently, it is necessary to evaluate the
significance of any threat created by the provision of such
services. In some cases it may be possible to eliminate or
reduce the threat created by application of safeguards. In
other cases no safeguards are available to reduce the threat
to an acceptable level.
290.155 The following activities would generally create self-interest
or self-review threats that are so significant that only
avoidance of the activity or refusal to perform the assurance
engagement would reduce the threats to an acceptable
level.
Authorizing, executing or consummating a transaction,
or otherwise exercising authority on behalf of the
assurance client, or having the authority to do so.
Determining which recommendation of the firm should
be implemented.
Reporting, in a management role, to those charged
with governance.
290.156 The potential threats to independence will most frequently
arise when a non-assurance service is provided to a
financial statement audit client. The financial statements of

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an entity provide financial information about a broad range
of transactions and events that have affected the entity. The
subject matter information of other assurance services,
however, may be limited in nature. Threats to
independence, however, may also arise when a firm
provides a non-assurance service related to the subject
matter information, of a non- financial statement audit
assurance engagement. In such cases, consideration
should be given to the significance of the firm’s involvement
with the subject matter information, of the engagement,
whether any self-review threats are created and whether
any threats to independence could be reduced to an
acceptable level by application of safeguards, or whether
the engagement should be declined. When the non-
assurance service is not related to the subject matter
information, of the non-financial statement audit assurance
engagement, the threats to independence will generally be
clearly insignificant
290.157 The following activities may also create self-review or self-
interest threats:
Having custody of an assurance client’s assets.
Supervising assurance client employees in the
performance of their normal recurring activities.
Preparing source documents or originating data, in
electronic or other form, evidencing the occurrence of a
transaction (for example, purchase orders, payroll time
records, and customer orders).
The significance of any threat created should be evaluated
and, if the threat is other than clearly insignificant,
safeguards should be considered and applied as necessary
to eliminate the threat or reduce it to an acceptable level.
Such safeguards might include:
Making arrangements so that personnel providing such
services do not participate in the assurance
engagement;
Involving an additional professional accountant to
advise on the potential impact of the activities on the
independence of the firm and the assurance team; or

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Other relevant safeguards set out in national
regulations.
290.158 New developments in business, the evolution of financial
markets, rapid changes in information technology, and the
consequences for management and control, make it
impossible to draw up an all-inclusive list of all situations
when providing non- assurance services to an assurance
client might create threats to independence and of the
different safeguards that might eliminate these threats or
reduce them to an acceptable level. In general, however, a
firm may provide services beyond the assurance
engagement provided any threats to independence have
been reduced to an acceptable level.
290.159 The following safeguards may be particularly relevant in
reducing to an acceptable level threats created by the
provision of non-assurance services to assurance clients:
Policies and procedures to prohibit professional staff
from making management decisions for the assurance
client, or assuming responsibility for such decisions.
Discussing independence issues related to the
provision of non-assurance services with those
charged with governance, such as the audit committee.
Policies within the assurance client regarding the
oversight responsibility for provision of non-assurance
services by the firm.
Involving an additional professional accountant to
advise on the potential impact of the non-assurance
engagement on the independence of the member of
the assurance team and the firm.
Involving an additional professional accountant outside
of the firm to provide assurance on a discrete aspect of
the assurance engagement.
Obtaining the assurance client’s acknowledgement of
responsibility for the results of the work performed by
the firm.
Disclosing to those charged with governance, such as
the audit committee, the nature and extent of fees
charged.
Making arrangements so that personnel providing non-

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assurance services do not participate in the assurance
engagement.
290.160 Before the firm accepts an engagement to provide a non-
assurance service to an assurance client, consideration
should be given to whether the provision of such a service
would create a threat to independence. In situations when a
threat created is other than clearly insignificant, the non-
assurance engagement should be declined unless
appropriate safeguards can be applied to eliminate the
threat or reduce it to an acceptable level.
290.161 The provision of certain non-assurance services to financial
statement audit clients may create threats to independence
so significant that no safeguard could eliminate the threat or
reduce it to an acceptable level. However, the provision of
such services to a related entity, division or discrete financial
statement item of such clients may be permissible when any
threats to the firm’s independence have been reduced to an
acceptable level by arrangements for that related entity,
division or discrete financial statement item to be audited by
another firm or when another firm re-performs the non-
assurance service to the extent necessary to enable it to
take responsibility for that service.
Preparing Accounting Records and Financial
Statements
290.162 Assisting a financial statement audit client in matters such
as preparing accounting records or financial statements may
create a self-review threat when the financial statements are
subsequently audited by the firm.*
290.163 It is the responsibility of financial statement audit client
management to ensure that accounting records are kept and
financial statements are prepared, although they may
request the firm to provide assistance. If firm, or network
firm, personnel providing such assistance make
management decisions, the self-review threat created could
not be reduced to an acceptable level by any safeguards.
*
It may however be noted that the members are not permitted to write the books of
account of their auditee clients. Attention is invited to “Guidance Note on
Independence of Auditors” in this regard.

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Consequently, personnel should not make such decisions.
Examples of such managerial decisions include:
Determining or changing journal entries, or the
classifications for accounts or transaction or other
accounting records without obtaining the approval of
the financial statement audit client;
Authorizing or approving transactions; and
Preparing source documents or originating data
(including decisions on valuation assumptions), or
making changes to such documents or data.
290.164 The audit process involves extensive dialogue between the
firm and management of the financial statement audit client.
During this process, management requests and receives
significant input regarding such matters as accounting
principles and financial statement disclosure, the
appropriateness of controls and the methods used in
determining the stated amounts of assets and liabilities.
Technical assistance of this nature and advice on
accounting principles for financial statement audit clients are
an appropriate means to promote the fair presentation of the
financial statements. The provision of such advice does not
generally threaten the firm’s independence. Similarly, the
financial statement audit process may involve technically
assisting an audit client in resolving account reconciliation
problems, analyzing and accumulating information for
regulatory reporting, assisting in the preparation of
consolidated financial statements (including the translation
of local statutory accounts to comply with group accounting
policies and the transition to a different reporting framework
such as Financial Reporting Standards), drafting disclosure
items, proposing adjusting journal entries and providing
technical assistance and advice in the preparation of local
statutory accounts of subsidiary entities. These services are
considered to be a normal part of the audit process and do
not, under normal circumstances, threaten independence.
General Provisions
290.165 Self-review threats may be created if the firm is involved in
the preparation of accounting records or financial
statements and those financial statements are subsequently
the subject matter information of an audit engagement of the

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firm. This notion may be equally applicable in situations
when the subject matter information of the assurance
engagement is not financial statements.
Valuation Services
290.166 A valuation comprises the making of assumptions with
regard to future developments, the application of certain
methodologies and techniques, and the combination of both
in order to compute a certain value, or range of values, for
an asset, a liability or for a business as a whole.
290.167 A self-review threat may be created when a firm or network
firm performs a valuation for a financial statement audit
client that is to be incorporated into the client’s financial
statements.
290.168 If the valuation service involves the valuation of matters
material to the financial statements and the valuation
involves a significant degree of subjectivity, the self- review
threat created could not be reduced to an acceptable level
by the application of any safeguard. Accordingly, such
valuation services should not be provided or, alternatively,
the only course of action would be to withdraw from the
financial statement audit engagement.
290.169 Performing valuation services for a financial statement audit
client that are neither separately, nor in the aggregate,
material to the financial statements, or that do not involve a
significant degree of subjectivity, may create a self-review
threat that could be reduced to an acceptable level by the
application of safeguards. Such safeguards might include:
Involving an additional professional accountant who
was not a member of the assurance team to review the
work done or otherwise advise as necessary;
Confirming with the audit client their understanding of
the underlying assumptions of the valuation and the
methodology to be used and obtaining approval for
their use;
Obtaining the audit client’s acknowledgement of
responsibility for the results of the work performed by
the firm; and
Making arrangements so that personnel providing such
services do not participate in the audit engagement.

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In determining whether the above safeguards would be
effective, consideration should be given to the following
matters:
(a) The extent of the audit client’s knowledge, experience
and ability to evaluate the issues concerned, and the
extent of their involvement in determining and
approving significant matters of judgment.
(b) The degree to which established methodologies and
professional guidelines are applied when performing a
particular valuation service.
(c) For valuations involving standard or established
methodologies, the degree of subjectivity inherent in
the item concerned.
(d) The reliability and extent of the underlying data.
(e) The degree of dependence on future events of a nature
which could create significant volatility inherent in the
amounts involved.
(f) The extent and clarity of the disclosures in the financial
statements.
290.170 When a firm, or a network firm, performs a valuation service
for a financial statement audit client for the purposes of
making a filing or return to a tax authority, computing an
amount of tax due by the client, or for the purpose of tax
planning, this would not create a significant threat to
independence because such valuations are generally
subject to external review, for example by a tax authority.
290.171 When the firm performs a valuation that forms part of the
subject matter information of an assurance engagement that
is not a financial statement audit engagement, the firm
should consider any self-review threats. If the threat is other
than clearly insignificant, safeguards should be considered
and applied as necessary to eliminate the threat or reduce it
to an acceptable level.
Provision of Taxation Services to Financial Statement
Audit Clients
290.172 Many a times, the firms may be asked to provide taxation
services to a financial statement audit client. Taxation
services comprise a broad range of services, including

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compliance, planning, provision of formal taxation opinions
and assistance in the resolution of tax disputes. Such
assignments are generally not seen to create threats to
independence.
Provision of Internal Audit Services to Financial
Statement Audit Clients
290.173 A statutory auditor of an entity can not be it’s internal auditor
as it will not be possible for him to give an independent and
objective opinion.*
Provision of IT Systems Services to Financial
Statement Audit Clients
290.174 The provision of services by a firm or network firm to a
financial statement audit client that involve the design and
implementation of financial information technology systems
that are used to generate information forming part of a
client’s financial statements may create a self-review threat.
290.175 The self-review threat is likely to be too significant to allow
the provision of such services to a financial statement audit
client unless appropriate safeguards are put in place
ensuring that:
(a) The audit client acknowledges its responsibility for
establishing and monitoring a system of internal
controls;
(b) The audit client designates a competent employee,
preferably within senior management, with the
responsibility to make all management decisions with
respect to the design and implementation of the
hardware or software system;
(c) The audit client makes all management decisions with
respect to the design and implementation process;
(d) The audit client evaluates the adequacy and results of
the design and implementation of the system; and
(e) The audit client is responsible for the operation of the
system (hardware or software) and the data used or
generated by the system.
*
Attention is also invited to “Guidance Note on Independence of Auditors”.

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290.176 Consideration should also be given to whether such non-
assurance services should be provided only by personnel
not involved in the financial statement audit engagement
and with different reporting lines within the firm.
290.177 The provision of services by a firm, or network firm, to a
financial statement audit client which involve either the
design or the implementation of financial information
technology systems that are used to generate information
forming part of a client’s financial statements may also
create a self-review threat. The significance of the threat, if
any, should be evaluated and, if the threat is other than
clearly insignificant, safeguards should be considered and
applied as necessary to eliminate the threat or reduce it to
an acceptable level.
290.178 The provision of services in connection with the
assessment, design and implementation of internal
accounting controls and risk management controls are not
considered to create a threat to independence provided that
firm or network firm personnel do not perform management
functions.
Temporary Staff Assignments to Financial Statement
Audit Clients*
290.179 The lending of staff by a firm, or network firm, to a financial
statement audit client may create a self-review threat when
the individual is in a position to influence the preparation of a
client’s accounts or financial statements. In practice, such
assistance may be given (particularly in emergency
situations) but only on the understanding that the firm’s or
network firm’s personnel will not be involved in:
(a) Making management decisions;
(b) Approving or signing agreements or other similar
documents; or
(c) Exercising discretionary authority to commit the client.
Each situation should be carefully analyzed to identify
whether any threats are created and whether appropriate
*
As per the provisions of the Guidance Note on Independence, it is not permitted to
do the Book keeping work of the client.

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safeguards should be implemented. Safeguards that should
be applied in all circumstances to reduce any threats to an
acceptable level include:
The staff providing the assistance should not be given
audit responsibility for any function or activity that they
performed or supervised during their temporary staff
assignment; and
The audit client should acknowledge its responsibility
for directing and supervising the activities of firm, or
network firm, personnel.
Provision of Litigation Support Services to Financial
Statement Audit Clients
290.180 Litigation support services may include activities such as
acting as an expert witness, calculating estimated damages
or other amounts that might become receivable or payable
as the result of litigation or other legal dispute, and
assistance with document management and retrieval in
relation to a dispute or litigation.
290.181 A self-review threat may be created when the litigation
support services provided to a financial statement audit
client include the estimation of the possible outcome and
thereby affects the amounts or disclosures to be reflected in
the financial statements. The significance of any threat
created will depend upon factors such as:
The materiality of the amounts involved;
The degree of subjectivity inherent in the matter
concerned; and
The nature of the engagement.
The firm, or network firm, should evaluate the significance of
any threat created and, if the threat is other than clearly
insignificant, safeguards should be considered and applied
as necessary to eliminate the threat or reduce it to an
acceptable level. Such safeguards might include:
Policies and procedures to prohibit individuals assisting
the audit client from making managerial decisions on
behalf of the client;

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Using professionals who are not members of the
assurance team to perform the service; or
The involvement of others, such as independent
experts.
290.182 If the role undertaken by the firm or network firm involved
making managerial decisions on behalf of the financial
statement audit client, the threats created could not be
reduced to an acceptable level by the application of any
safeguard. Therefore, the firm or network firm should not
perform this type of service for an audit client.
Provision of Legal Services to Financial Statement
Audit Clients
290.183 Legal services are defined as any services for which the
person providing the services must either be admitted to
practice before the Courts of the jurisdiction in which such
services are to be provided, or have the required legal
training to practice law. Legal services encompass a wide
and diversified range of areas including both corporate and
commercial services to clients, such as contract support,
litigation, mergers and acquisition advice and support and
the provision of assistance to clients’ internal legal
departments. The provision of legal services by a firm, or
network firm, to an entity that is a financial statement audit
client may create both self-review and advocacy threats.
290.184 Threats to independence need to be considered depending
on the nature of the service to be provided, whether the
service provider is separate from the assurance team and
the materiality of any matter in relation to the entities’
financial statements. The safeguards set out in paragraph
290.157 may be appropriate in reducing any threats to
independence to an acceptable level. In circumstances
when the threat to independence cannot be reduced to an
acceptable level the only available action is to decline to
provide such services or withdraw from the financial
statement audit engagement.
290.185 The provision of legal services to a financial statement audit
client which involve matters that would not be expected to
have a material effect on the financial statements are not
considered to create an unacceptable threat to
independence.

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290.186 There is a distinction between advocacy and advice. Legal
services to support a financial statement audit client in the
execution of a transaction (e.g., contract support, legal
advice, legal due diligence and restructuring) may create
self-review threats; however, safeguards may be available
to reduce these threats to an acceptable level. Such a
service would not generally impair independence, provided
that:
(a) Members of the assurance team are not involved in
providing the service; and
(b) In relation to the advice provided, the audit client
makes the ultimate decision or, in relation to the
transactions, the service involves the execution of what
has been decided by the audit client.
290.187 Acting for a financial statement audit client in the resolution
of a dispute or litigation in such circumstances when the
amounts involved are material in relation to the financial
statements of the audit client would create advocacy and
self-review threats so significant that no safeguard could
reduce the threat to an acceptable level. Therefore, the firm
should not perform this type of service for a financial
statement audit client.
290.188 When a firm is asked to act in an advocacy role for a
financial statement audit client in the resolution of a dispute
or litigation in circumstances when the amounts involved are
not material to the financial statements of the audit client,
the firm should evaluate the significance of any advocacy
and self-review threats created and, if the threat is other
than clearly insignificant, safeguards should be considered
and applied as necessary to eliminate the threat or reduce it
to an acceptable level. Such safeguards might include:
Policies and procedures to prohibit individuals assisting
the audit client from making managerial decisions on
behalf of the client; or
Using professionals who are not members of the
assurance team to perform the service.
290.189 The appointment of a partner or an employee of the firm or
network firm as General Counsel for legal affairs to a
financial statement audit client would create self-review and
advocacy threats that are so significant that no safeguards

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could reduce the threats to an acceptable level. The position
of General Counsel is generally a senior management
position with broad responsibility for the legal affairs of a
company and consequently, no member of the firm or
network firm should accept such an appointment for a
financial statement audit client
Recruiting Senior Management
290.190 The recruitment of senior management for an assurance
client, such as those in a position to affect the subject matter
information of the assurance engagement, may create
current or future self-interest, familiarity and intimidation
threats. The significance of the threat will depend upon
factors such as:
The role of the person to be recruited; and
The nature of the assistance sought.
The firm could generally provide such services as reviewing
the professional qualifications of a number of applicants and
provide advice on their suitability for the post. In addition,
the firm could generally produce a short-list of candidates for
interview, provided it has been drawn up using criteria
specified by the assurance client.
The significance of the threat created should be evaluated
and, if the threat is other than clearly insignificant,
safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. In all cases, the
firm should not make management decisions and the
decision as to whom to hire should be left to the client.
Corporate Finance and Similar Activities
290.191 The provision of corporate finance services, advice or
assistance to an assurance client may create advocacy and
self-review threats. In the case of certain corporate finance
services, the independence threats created would be so
significant no safeguards could be applied to reduce the
threats to an acceptable level. For example, promoting,
dealing in, or underwriting of an assurance client’s shares is
not compatible with providing assurance services. Moreover,
committing the assurance client to the terms of a transaction
or consummating a transaction on behalf of the client would
create a threat to independence so significant no safeguard

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could reduce the threat to an acceptable level. In the case of
a financial statement audit client the provision of those
corporate finance services referred to above by a firm or a
network firm would create a threat to independence so
significant that no safeguard could reduce the threat to an
acceptable level.
290.192 Other corporate finance services may create advocacy or
self-review threats; however, safeguards may be available
to reduce these threats to an acceptable level. Examples of
such services include assisting a client in developing
corporate strategies, assisting in identifying or introducing a
client to possible sources of capital that meet the client
specifications or criteria, and providing structuring advice
and assisting a client in analyzing the accounting effects of
proposed transactions. Safeguards that should be
considered include:
Policies and procedures to prohibit individuals assisting
the assurance client from making managerial decisions
on behalf of the client;
Using professionals who are not members of the
assurance team to provide the services; and
Ensuring the firm does not commit the assurance client
to the terms of any transaction or consummate a
transaction on behalf of the client.
FEES AND PRICING
Fees–Relative Size*
290.193 When the total fees generated by an assurance client
represent a large proportion of a firm’s total fees, the
dependence on that client or client group and concern about
the possibility of losing the client may create a self-interest
threat. The significance of the threat will depend upon
factors such as:
The structure of the firm; and
Whether the firm is well established or newly created.
The significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should be
*
The professional accountant may refer the Guidelines issued by the Council of the
Institute from time to time.

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considered and applied as necessary to reduce the threat to
an acceptable level. Such safeguards might include:
Discussing the extent and nature of fees charged with
the audit committee, or others charged with governance;
Taking steps to reduce dependency on the client;
External quality control reviews; and
Consulting a third party, such as a professional
regulatory body or another professional accountant.
290.194 A self-interest threat may also be created when the fees
generated by the assurance client represent a large
proportion of the revenue of an individual partner. The
significance of the threat should be evaluated and, if the
threat is other than clearly insignificant, safeguards should
be considered and applied as necessary to reduce the
threat to an acceptable level. Such safeguards might
include:
Policies and procedures to monitor and implement
quality control of assurance engagements; and
Involving an additional professional accountant who
was not a member of the assurance team to review the
work done or otherwise advise as necessary.
Fees Overdue
290.195 A self-interest threat may be created if fees due from an
assurance client for professional services remain unpaid for
a long time, especially if a significant part is not paid before
the issue of the assurance report for the following year.
Generally the payment of such fees should be required
before the report is issued. The following safeguards may be
applicable:
Discussing the level of outstanding fees with the audit
committee, or others charged with governance.
Involving an additional professional accountant who did
not take part in the assurance engagement to provide
advice or review the work performed.
The firm should also consider whether the overdue fees
might be regarded as being equivalent to a loan to the client
and whether, because of the significance of the overdue
fees, it is appropriate for the firm to be re-appointed.

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Pricing
290.196 When a firm obtains an assurance engagement at a
significantly lower fee level than that charged by the
predecessor firm, or quoted by other firms, the self-interest
threat created will not be reduced to an acceptable level
unless:
(a) The firm is able to demonstrate that appropriate time
and qualified staff are assigned to the task; and
(b) All applicable assurance standards, guidelines and
quality control procedures are being complied with.
Restriction on Fees
290.197 The fees which are based on a percentage of profits or
which are contingent upon the findings, or results of such
work, is not allowed except in cases which are permitted
under Regulation 192 of The Chartered Accountants
Regulations, 1988.
Gifts and Hospitality
290.198 Accepting gifts or hospitality from an assurance client may
create self-interest and familiarity threats. When a firm or a
member of the assurance team accepts gifts or hospitality,
unless the value is clearly insignificant, the threats to
independence cannot be reduced to an acceptable level by
the application of any safeguard. Consequently, a firm or a
member of the assurance team should not accept such gifts
or hospitality.
Actual or Threatened Litigation
290.199 When litigation takes place, or appears likely, between the
firm or a member of the assurance team and the assurance
client, a self-interest or intimidation threat may be created.
The relationship between client management and the
members of the assurance team must be characterized by
complete candor and full disclosure regarding all aspects of
a client’s business operations. The firm and the client’s
management may be placed in adversarial positions by
litigation, affecting management’s willingness to make
complete disclosures and the firm may face a self-interest
threat. The significance of the threat created will depend

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upon such factors as:
The materiality of the litigation;
The nature of the assurance engagement; and
Whether the litigation relates to a prior assurance
engagement.
Once the significance of the threat has been evaluated the
following safeguards should be applied, if necessary, to
reduce the threats to an acceptable level:
(a) Disclosing to the audit committee, or others charged
with governance, the extent and nature of the litigation;
(b) If the litigation involves a member of the assurance
team, removing that individual from the assurance
team; or
(c) Involving an additional professional accountant in the
firm who was not a member of the assurance team to
review the work done or otherwise advise as
necessary.
If such safeguards do not reduce the threat to an
appropriate level, the only appropriate action is to withdraw
from, or refuse to accept, the assurance engagement.

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CHAPTER 3
PROFESSIONAL ACCOUNTANTS
IN SERVICE
Section 300
Introduction
300.1 This Chapter of the Code illustrates how the conceptual
framework contained in Chapter 1 is to be applied by
professional accountants in service.
300.2 Investors, creditors, employers and other sectors of the
business community, as well as governments and the public
at large, all may rely on the work of professional
accountants in service. Professional accountants in service
may be solely or jointly responsible for the preparation and
reporting of financial and other information, which both their
employing organizations and third parties may rely on. They
may also be responsible for providing effective financial
management and competent advice on a variety of
business-related matters.
300.3 A professional accountant in service may be a salaried
employee, a partner, director (whether executive or non-
executive), an owner manager, a volunteer or another
working for one or more employing organization. The legal
form of the relationship with the employing organization, if
any, has no bearing on the ethical responsibilities incumbent
on the professional accountant in service.
300.4 A professional accountant in service has a responsibility to
further the legitimate aims of their employing organization.
This Code does not seek to hinder a professional
accountant in service from properly fulfilling that
responsibility, but considers circumstances in which conflicts
may be created with the absolute duty to comply with the
fundamental principles.
300.5 A professional accountant in service often holds a senior
position within an organization. The more senior the
position, the greater will be the ability and opportunity to
influence events, practices and attitudes. A professional
accountant in service is expected, therefore, to encourage

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an ethics-based culture in an employing organization that
emphasizes the importance that senior management places
on ethical behaviour.
300.6 The examples presented in the following sections are
intended to illustrate how the conceptual framework is to be
applied and are not intended to be, nor should they be
interpreted as, an exhaustive list of all circumstances
experienced by a professional accountant in service that
may create threats to compliance with the principles.
Consequently, it is not sufficient for a professional
accountant in service merely to comply with the examples;
rather, the conceptual framework should be applied to the
particular circumstances faced.
Threats and Safeguards
300.7 Compliance with the fundamental principles may potentially
be threatened by a broad range of circumstances. Many
threats fall into the following categories:
(a) Self-interest;
(b) Self-review;
(c) Advocacy;
(d) Familiarity; and
(e) Intimidation.
These threats are discussed further in Chapter 1.
300.8 Examples of circumstances that may create self-interest
threats for a professional accountant in service include, but
are not limited to:
Financial interests, loans or guarantees.
Incentive compensation arrangements.
Inappropriate personal use of corporate assets.
Concern over employment security.
Commercial pressure from outside the employing
organization.
300.9 Circumstances that may create self-review threats include,
but are not limited to, business decisions or data being
subject to review and justification by the same professional

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accountant in service responsible for making those
decisions or preparing that data.
300.10 When furthering the legitimate goals and objectives of their
employing organizations professional accountants in service
may promote the organization’s position, provided any
statements made are neither false nor misleading. Such
actions generally would not create an advocacy threat.
300.11 Examples of circumstances that may create familiarity
threats include, but are not limited to:
A professional accountant in service in a position to
influence financial or non- financial reporting or
business decisions having a relative who is in a
position to benefit from that influence.
Long association with business contacts influencing
business decisions.
Acceptance of a gift or preferential treatment, unless
the value is clearly insignificant.
300.12 Examples of circumstances that may create intimidation
threats include, but are not limited to:
Threat of dismissal or replacement of the professional
accountant in service or a relative over a disagreement
about the application of an accounting principle or the
way in which financial information is to be reported.
A dominant personality attempting to influence the
decision making process, for example with regard to
the awarding of contracts or the application of an
accounting principle.
300.13 Professional accountants in service may also find that
specific circumstances give rise to unique threats to
compliance with one or more of the fundamental principles.
Such unique threats obviously cannot be categorized. In all
professional and business relationships, professional
accountants in service should always be on the alert for
such circumstances and threats.
300.14 Safeguards that may eliminate or reduce to an acceptable
level the threats faced by professional accountants in
service fall into two broad categories:
(a) Safeguards created by the profession, legislation or
regulation; and

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(b) Safeguards in the work environment.
300.15 Examples of safeguards created by the profession,
legislation or regulation are detailed in paragraph 100.11.
300.16 Safeguards in the work environment include, but are not
restricted to:
The employing organization’s systems of corporate
oversight or other oversight structures.
The employing organization’s ethics and conduct
programs.
Recruitment procedures in the employing organization
emphasizing the importance of employing high caliber
competent staff.
Strong internal controls.
Appropriate disciplinary processes.
Leadership that stresses the importance of ethical
behaviour and the expectation that employees will act
in an ethical manner.
Policies and procedures to implement and monitor the
quality of employee performance.
Timely communication of the employing organization’s
policies and procedures, including any changes to
them, to all employees and appropriate training and
education on such policies and procedures.
Policies and procedures to empower and encourage
employees to communicate to senior levels within the
employing organization any ethical issues that concern
them without fear of retribution.
Consultation with another appropriate professional
accountant.
300.17 In circumstances where a professional accountant in service
believes that unethical behaviour or actions by others will
continue to occur within the employing organization, the
professional accountant in service should consider seeking
legal advice. In those extreme situations where all available
safeguards have been exhausted and it is not possible to
reduce the threat to an acceptable level, a professional
accountant in service may conclude that it is appropriate to
resign from the employing organization.

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Section 310
Potential Conflicts
310.1 A professional accountant in service has a professional
obligation to comply with the fundamental principles. There
may be times, however, when their responsibilities to an
employing organization and the professional obligations to
comply with the fundamental principles are in conflict.
Ordinarily, a professional accountant in service should
support the legitimate and ethical objectives established by
the employer and the rules and procedures drawn up in
support of those objectives. Nevertheless, where
compliance with the fundamental principles is threatened, a
professional accountant in service must consider a response
to the circumstances.
310.2 As a consequence of responsibilities to an employing
organization, a professional accountant in service may be
under pressure to act or behave in ways that could directly
or indirectly threaten compliance with the fundamental
principles. Such pressure may be explicit or implicit; it may
come from a supervisor, manager, director or another
individual within the employing organization. A professional
accountant in service may face pressure to:
Act contrary to law or regulation.
Act contrary to technical or professional standards.
Facilitate unethical or illegal earnings management
strategies.
Lie to, or otherwise intentionally mislead (including
misleading by remaining silent) others, in particular:
– The auditors of the employing organization; or
– Regulators.
Issue, or otherwise be associated with, a financial or
non-financial report that materially misrepresents the
facts, including statements in connection with, for
example:
– The financial statements;
– Tax compliance;
– Legal compliance; or
– Reports required by securities regulators.

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310.3. The significance of threats arising from such pressures,
such as intimidation threats, should be evaluated and, if they
are other than clearly insignificant, safeguards should be
considered and applied as necessary to eliminate them or
reduce them to an acceptable level. Such safeguards may
include:
Obtaining advice where appropriate from within the
employing organization, an independent professional
advisor or a relevant professional body.
The existence of a formal dispute resolution process
within the employing organization.
Seeking legal advice.
Section 320
Preparation and Reporting of Information
320.1 Professional accountants in service are often involved in the
preparation and reporting of information that may either be
made public or used by others inside or outside the
employing organization. Such information may include
financial or management information, for example, forecasts
and budgets, financial statements, management discussion
and analysis, and the management letter of representation
provided to the auditors as part of an audit of financial
statements. A professional accountant in service should
prepare or present such information fairly, honestly and in
accordance with relevant professional standards so that the
information will be understood in its context.
320.2 A professional accountant in service who has responsibility
for the preparation or approval of the general purpose
financial statements of an employing organization should
ensure that those financial statements are presented in
accordance with the applicable financial reporting standards.
320.3 A professional accountant in service should maintain
information for which the professional accountant in service
is responsible in a manner that:
(a) Describes clearly the true nature of business
transactions, assets or liabilities;
(b) Classifies and records information in a timely and
proper manner; and

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(c) Represents the facts accurately and completely in all
material respects.
320.4 Threats to compliance with the fundamental principles, for
example self-interest or intimidation threats to objectivity or
professional competence and due care, may be created
where a professional accountant in service may be
pressured (either externally or by the possibility of personal
gain) to become associated with misleading information or
to become associated with misleading information through
the actions of others.
320.5 The significance of such threats will depend on factors such
as the source of the pressure and the degree to which the
information is, or may be, misleading. The significance of
the threats should be evaluated and, if they are other than
clearly insignificant, safeguards should be considered and
applied as necessary to eliminate them or reduce them to an
acceptable level. Such safeguards may include consultation
with superiors within the employing organization, for
example, the audit committee or other body responsible for
governance, or with a relevant professional body.
320.6 Where it is not possible to reduce the threat to an
acceptable level, a professional accountant in service
should refuse to remain associated with information they
consider is or may be misleading. Should the professional
accountant in service be aware that the issuance of
misleading information is either significant or persistent, the
professional accountant in service should consider informing
appropriate authorities in line with the guidance in Section
140. The professional accountant in service may also wish
to seek legal advice or resign.
Section 330
Acting with Sufficient Expertise
330.1 The fundamental principle of professional competence and
due care requires that a professional accountant in service
should only undertake significant tasks for which the
professional accountant in service has, or can obtain,
sufficient specific training or experience. A professional
accountant in service should not intentionally mislead an
employer as to the level of expertise or experience
possessed, nor should a professional accountant in service

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fail to seek appropriate expert advice and assistance when
required.
330.2 Circumstances that threaten the ability of a professional
accountant in service to perform duties with the appropriate
degree of professional competence and due care include:
Insufficient time for properly performing or completing
the relevant duties.
Incomplete, restricted or otherwise inadequate
information for performing the duties properly.
Insufficient experience, training and/or education.
Inadequate resources for the proper performance of
the duties.
330.3 The significance of such threats will depend on factors such
as the extent to which the professional accountant in service
is working with others, relative seniority in the business and
the level of supervision and review applied to the work. The
significance of the threats should be evaluated and, if they
are other than clearly insignificant, safeguards should be
considered and applied as necessary to eliminate them or
reduce them to an acceptable level. Safeguards that may be
considered include:
Obtaining additional advice or training.
Ensuring that there is adequate time available for
performing the relevant duties.
Obtaining assistance from someone with the necessary
expertise.
Consulting, where appropriate, with:
– Superiors within the employing organization;
– Independent experts; or
– A relevant professional body.
330.4 Where threats cannot be eliminated or reduced to an
acceptable level, professional accountants in service should
consider whether to refuse to perform the duties in question.
If the professional accountant in service determines that
refusal is appropriate the reasons for doing so should be
clearly communicated.

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Section 340
Financial Interests
340.1 Professional accountants in service may have financial
interests, or may know of financial interests of relative, that
could, in certain circumstances, give rise to threats to
compliance with the fundamental principles. For example,
self-interest threats to objectivity or confidentiality may be
created through the existence of the motive and opportunity
to manipulate price sensitive information in order to gain
financially. Examples of circumstances that may create self-
interest threats include, but are not limited to situations
where the professional accountant in service or a relative:
Holds a direct or indirect financial interest in the
employing organization and the value of that financial
interest could be directly affected by decisions made by
the professional accountant in service;
Is eligible for a profit related bonus and the value of
that bonus could be directly affected by decisions
made by the professional accountant in service;
Holds, directly or indirectly, share options in the
employing organization, the value of which could be
directly affected by decisions made by the professional
accountant in service;
Holds, directly or indirectly, share options in the
employing organization which are, or will soon be,
eligible for conversion; or
May qualify for share options in the employing
organization or performance related bonuses if certain
targets are achieved.
340.2 In evaluating the significance of such a threat, and the
appropriate safeguards to be applied to eliminate the threat
or reduce it to an acceptable level, professional accountants
in service must examine the nature of the financial interest.
This includes an evaluation of the significance of the
financial interest and whether it is direct or indirect. Clearly,
what constitutes a significant or valuable stake in an
organization will vary from individual to individual, depending
on personal circumstances.

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340.3 If threats are other than clearly insignificant, safeguards
should be considered and applied as necessary to eliminate
or reduce them to an acceptable level. Such safeguards
may include:
Policies and procedures for a committee independent
of management to determine the level of form of
remuneration of senior management.
Disclosure of all relevant interests, and of any plans to
trade in relevant shares to those charged with the
governance of the employing organization, in
accordance with any internal policies.
Consultation, where appropriate, with superiors within
the employing organization.
Consultation, where appropriate, with those charged
with the governance of the employing organization or
relevant professional bodies.
Internal and external audit procedures.
Up-to-date education on ethical issues and the legal
restrictions and other regulations around potential
insider trading.
340.4 A professional accountant in service should neither
manipulate information nor use confidential information for
personal gain.
Section 350
Inducements
Receiving Offers
350.1 A professional accountant in service or a relative may be
offered an inducement. Inducements may take various
forms, including gifts, hospitality, preferential treatment and
inappropriate appeals to friendship or loyalty.
350.2 Offers of inducements may create threats to compliance
with the fundamental principles. When a professional
accountant in service or a relative is offered an inducement,
the situation should be carefully considered. Self- interest
threats to objectivity or confidentiality are created where an
inducement is made in an attempt to unduly influence
actions or decisions, encourage illegal or dishonest

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behaviour or obtain confidential information. Intimidation
threats to objectivity or confidentiality are created if such an
inducement is accepted and it is followed by threats to make
that offer public and damage the reputation of either the
professional accountant in service or a relative.
350.3 The significance of such threats will depend on the nature,
value and intent behind the offer. If a reasonable and
informed third party, having knowledge of all relevant
information, would consider the inducement insignificant and
not intended to encourage unethical behaviour, then a
professional accountant in service may conclude that the
offer is made in the normal course business and may
generally conclude that there is no significant threat to
compliance with the fundamental principles.
350.4 If evaluated threats are other than clearly insignificant,
safeguards should be considered and applied as necessary
to eliminate them or reduce them to an acceptable level.
When the threats cannot be eliminated or reduced to an
acceptable level through the application of safeguards, a
professional accountant in service should not accept the
inducement. As the real or apparent threats to compliance
with the fundamental principles do not merely arise from
acceptance of an inducement but, sometimes, merely from
the fact of the offer having been made, additional
safeguards should be adopted. A professional accountant in
service should assess the risk associated with all such
offers and consider whether the following actions should be
taken:
(a) Where such offers have been made, immediately
inform higher levels of management or those charged
with governance of the employing organization;
(b) Inform third parties of the offer – for example, a
professional body or the employer of the individual who
made the offer; a professional accountant in service
should, however, consider seeking legal advice before
taking such a step; and
(c) Advise relatives of relevant threats and safeguards
where they are potentially in positions that might result
in offers of inducements, for example as a result of
their employment situation; and

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(d) Inform higher levels of management or those charged
with governance of the employing organization where
relatives are employed by competitors or potential
suppliers of that organization.
Making Offers
350.5 A professional accountant in service may be in a situation
where the professional accountant in service is expected to,
or is under other pressure to, offer inducements to
subordinate the judgment of another individual or
organization, influence a decision- making process or obtain
confidential information.
350.6 Such pressure may come from within the employing
organization, for example, from a colleague or superior. It
may also come from an external individual or organization
suggesting actions or business decisions that would be
advantageous to the employing organization possibly
influencing the professional accountant in service
improperly.
350.7 A professional accountant in service should not offer an
inducement to improperly influence professional judgment of
a third party.
350.8 Where the pressure to offer an unethical inducement comes
from within the employing organization, the professional
accountant should follow the principles and guidance
regarding ethical conflict resolution set out in Chapter 1.
DEFINITIONS
In this section, the following expressions have the following
meanings assigned to them:
(a) Act The Chartered Accountants Act, 1949
(b) Advertising The communication to the public of
information as to the services or skills
provided by professional accountants in
public practice, with a view to procuring
professional business.
(c) Assurance
client
The responsible party that is the person (or
persons) who:
(a) In a direct reporting engagement, is
responsible for the subject matter; or

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(b) In an assertion-based engagement, is
responsible for the subject matter
information and may be responsible
for the subject matter.
(For an assurance client that is a financial
statement audit client see the definition of
financial statement audit client.)
(d) Assurance
engagement
An engagement in which a professional
accountant in public practice expresses a
conclusion designed to enhance the degree
of confidence of the intended users other
than the responsible party about the
outcome of the evaluation or measurement
of a subject matter against criteria.
(For guidance on assurance engagements,
see the Framework for Assurance
Engagements issued by the Council of the
Institute which describes the elements and
objectives of an assurance engagement
and identifies engagements to which
Standards on Auditing (SAs), Standards on
Review Engagements (SREs) and
Standards on Assurance Engagements
(SAEs) apply.)
(e) Assurance
team
(a) All members of the engagement
team for the assurance engagement;
(b) All others within a firm who can
directly influence the outcome of the
assurance engagement, including:
(i) those who recommend the
compensation of, or who
provide direct supervisory,
management or other oversight
of the assurance engagement
partner in connection with the
performance of the assurance
engagement. For the purposes
of a financial statement audit
engagement this includes
those at all successively senior

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levels above the engagement
partner through the firm’s chief
executive;
(ii) those who provide consultation
regarding technical or industry
specific issues, transactions or
events for the assurance
engagement; and
(iii) those who provide quality
control for the assurance
engagement, including those
who perform the engagement
quality control review for the
assurance engagement; and
(c) For the purposes of a financial
statement audit client, all those within
a network firm who can directly
influence the outcome of the financial
statement audit engagement.
(f) Clearly
insignificant
A matter that is deemed to be both trivial
and inconsequential.
(g) Council The Governing body of the Institute
constituted under the Act for the
management of the affairs of the Institute
and for discharging the functions assigned
to it under the Act.
(h) Direct financial
interest
Owned directly by and under the
control of an individual or entity
(including those managed on a
discretionary basis by others); or
Beneficially owned through a
collective investment vehicle, estate,
trust or other intermediary over which
the individual or entity has control
(i) Director or
officer
Those charged with the governance of an
entity, regardless of their title, which may
vary from country to country.
(j) Engagement
partner
The partner or other person in the firm who
is a member of the Institute of Chartered

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Accountants of India and is in full time
practice and is responsible for the
engagement and its performance, and for
the report that is issued on behalf of the
firm, and who, where required, has the
appropriate authority from a professional,
legal or regulatory body.
(k) Engagement
quality control
review
A process designed to provide an objective
evaluation, before the report is issued, of
the significant judgments the engagement
team made and the conclusions they
reached in formulating the report.
(l) Engagement
team
All personnel performing an engagement,
including any experts contracted by the firm
in connection with that engagement.
(m) Existing
accountant
A professional accountant in public practice
currently holding an audit appointment or
carrying out accounting, taxation,
consulting or similar professional services
for a client.
(n) Financial
interest
An interest in an equity or other security,
debenture, loan or other debt instrument of
an entity, including rights and obligations to
acquire such an interest and derivatives
directly related to such interest.
(o) Financial
statements
A complete set of financial statements
normally includes a balance sheet, a
statement of profit and loss (also referred to
as ‘income statement/Income and
Expenditure Account’), a cash flow
(wherever applicable), and those notes and
other statements and explanatory material
that are an integral part of the financial
statements. They may also include
supplementary schedules and information
based on or derived from, and expected to
be read with, such statements. Such
schedules and supplementary information
may deal, for example, with financial
information about business and

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geographical segments, and disclosures
about the effects of changing prices.
(p) Financial
statement audit
client
An entity in respect of which a firm conducts
a financial statement audit engagement.
When the client is a listed entity, financial
statement audit client will include its related
entities, wherever applicable.
(q) Financial
statement audit
engagement
A reasonable assurance engagement in
which a professional accountant in public
practice expresses an opinion whether
financial statements are prepared in all
material respects in accordance with an
identified financial reporting framework,
such as an engagement conducted in
accordance with Standards on Auditing.
This includes a Statutory Audit, which is a
financial statement audit required by
legislation or other regulation.
(r) Firm A sole practitioner/ proprietor, partnership
or any such entity of professional
accountants, as may be permitted by law.
(s) Independence Independence is:
(a) Independence of mind – the states of
mind that permits the provision of an
opinion without being affected by
influences that compromise
professional judgment, allowing an
individual to act with integrity, and
exercise objectivity and professional
judgment
(b) Independence in appearance – the
avoidance of facts and circumstances
that are so significant a reasonable
and informed third party, having
knowledge of all relevant information,
including any safeguards applied,
would reasonably conclude a firm’s,
or a member of the assurance team’s,
integrity, objectivity or professional
skepticism had been compromised.

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(t) Indirect
financial
Interest
A financial interest beneficially owned
through a collective investment vehicle,
estate, trust or other intermediary over
which the individual or entity has no control.
(u) Institute The Institute of Chartered Accountants of
India constituted under the provisions of
The Chartered Accountants Act, 1949.
(v) Listed entity An entity whose shares, stock or debt are
quoted or listed on a recognized stock
exchange, or are marketed under the
regulations of a recognized stock exchange
or other equivalent body.
(w) Network firm Networking amongst two or more firms
under common control, ownership or
management with the firm or having
affiliation with an accounting entity or any
entity that a reasonable and informed third
party having knowledge of all relevant
information would reasonably conclude as
being part of the firm nationally.
(x) Office A distinct sub-group, whether organized on
geographical or practice lines which
includes main office and branch office.
(y) Professional
accountant
An individual who is a member of the
Institute of Chartered Accountants of India.
(z) Professional
accountant in
service
A professional accountant employed or
engaged in an executive or non-executive
capacity in such areas as commerce,
industry, service, the public sector,
education, the not for profit sector,
regulatory bodies or professional bodies, or
a professional accountant contracted by
such entities.
(za) Professional
accountant in
Public practice
(Practitioner)
Member of the Institute of Chartered
Accountants of India who is in practice in
terms of section 2 of The Chartered
Accountants Act, 1949. The term is also
used to refer to a firm of chartered
accountants in public practice.

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(zb) Professional
services
Services performed by a professional
accountant including accounting, auditing,
taxation, management consulting and
financial management services.
(zc) Relative A person shall be deemed to be a relative
of a professional accountant when he is
related to the professional accountant in
the manner mentioned in Section 6 of
Companies Act, 1956.
(zd) Related entity An entity that has any of the following
relationships with the client:
(a) An entity that has direct or indirect
control over the client provided the
client is material to such entity;
(b) An entity with a direct financial
interest in the client provided that
such entity has significant influence
over the client and the interest in the
client is material to such entity;
(c) An entity over which the client has
direct or indirect control;
(d) An entity in which the client, or an
entity related to the client under (c)
above, has a direct financial interest
that gives it significant influence over
such entity and the interest is material
to the client and its related entity in
(c); and An entity which is under
common control with the client
(hereinafter a “sister entity”) provided
the sister entity and the client are both
material to the entity that controls
both the client and sister entity.

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PART-B
CHAPTER 4
ACCOUNTING AND AUDITING STANDARDS
Authority Attached to Documents Issued by
the Institute1
4.1 The Institute has, from time to time, issued ‘Guidance Notes’ and
‘Statements’ on a number of matters. With the formation of the
Accounting Standards Board and the Auditing Practices Committee2
,
‘Accounting Standards’ and ‘Statements on Standard Auditing
Practices’3
are also being issued.
4.2 Members have sought guidance regarding the level of authority
attached to the various documents issued by the Institute and the
degree of compliance required in respect thereof. This is being
published here to provide this guidance.
4.3 The ‘Statements’ have been issued with a view to securing
compliance by members on matters which, in the opinion of the
Council, are critical for the proper discharge of their functions.
‘Statements’ therefore are mandatory. Accordingly, while discharging
their attest function, it will be the duty of the members of the Institute:
(a) to examine whether ‘Statements’ relating to accounting
matters are complied with in the presentation of financial
statements covered by their audit. In the event of any
deviation from the ‘Statements’, it will be their duty to make
adequate disclosures in their audit reports so that the users
of financial statements may be aware of such deviations;
and
(b) to ensure that the ‘Statements’ relating to auditing matters
are followed in the audit of financial information covered by
1
Published in the December, 1985 issue of the ‘The Chartered Accountant’.
2
Now known as the Auditing and Assurance Standards Board (AASB).
3
The Council approved the renaming of the Statements on Standard Auditing
Practices (SAPs) as, “Auditing and Assurance Standards” (AASs) in July 2002. With
effect from April 1, 2008, the nomenclature of ‘Auditing and Assurance Standards’
has been changed to ‘Quality Control and Engagement Standards’.

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their audit reports. If, for any reason, a member has not
been able to perform an audit in accordance with such
‘Statements’, his report should draw attention to the material
departures therefrom.
4.4 A list of Statements issued by the Institute and in force as on
1.10.2008 is given below.
(i) Statement on the Companies (Auditor’s Report) Order, 2003
(Revised 2005)
(ii) Statement on Reporting under section 227(1A) of the
Companies Act, 1956
(iii) Statement on the Amendments to Schedule VI to the
Companies Act, 1956.
(iv) Statement on Peer Review.
(v) Statement on Continuing Professional Education.
4.5 ‘Guidance Notes’ are primarily designed to provide guidance to
members on matters which may arise in the course of their
professional work and on which they may desire assistance in
resolving issues which may pose difficulty. Guidance Notes are
recommendatory in nature. A member should ordinarily follow
recommendations in a guidance note relating to an auditing matter
except where he is satisfied that in the circumstances of the case, it
may not be necessary to do so. Similarly, while discharging his attest
function, a member should examine whether the recommendations in
a guidance note relating to an accounting matter have been followed
or not. If the same have not been followed, the member should
consider whether keeping in view the circumstances of the case, a
disclosure in his report is necessary. In respect of the following
Guidance Notes, however, the Council had specifically stated that they
should be considered as mandatory on members while discharging
their attest function.
(i) Guidance Note on Treatment of interest on Deferred
Payments read along with the pronouncement of the
Council, published in The Chartered Accountant, March,
1984, p.591
(ii) Provision for Depreciation in respect of Extra or Multiple
Shift Allowance, published in The Chartered Accountant
May 1984, p.765.
4.6 The ‘Accounting Standards’ and ‘Statements on Standard Auditing

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Practices’4
issued by the Accounting Standards Board and the Auditing
Practices Committee5
, respectively, establish standards which have to
be complied with to ensure that financial statements are prepared in
accordance with generally accepted accounting standards and that
auditors carry out their audits in accordance with the generally
accepted auditing practices. They become mandatory on the dates
specified either in the respective document or by notification issued by
the Council.
4.7 There can be situations in which certain matters are covered both
by a ‘Statement’ and by an ‘Accounting Standard’/‘Statement on
Standard Auditing Practices’6
. In such a situation, the ‘Statement’ shall
prevail till the time the relevant ‘Accounting Standard’/‘Statement on
Standard Auditing Practices’7
becomes mandatory. It is clarified that
once an ‘Accounting Standard’/‘Statement on Standard Auditing
Practices’8
becomes mandatory, the concerned ‘Statement’ or the
relevant part thereof shall automatically stand withdrawn.
ACCOUNTING STANDARDS AND QUALITY
CONTROL AND ENGAGEMENT STANDARDS
4.8 The ‘Accounting Standards’ and ‘Quality Control and Engagement
Standards’ establish standards which have to be complied with to
ensure that financial statements are prepared in accordance with
generally accepted accounting standards and that auditors carry out
their audits in accordance with the generally accepted auditing
practices. They become mandatory on the dates specified in the
respective document or notified by the Council.
4.9 There can be situations in which certain matters are covered both
by a Statement and by an Accounting Standard/Quality Control and
Engagement Standard. In such a situation, the Statement shall prevail
till the time the relevant ‘Accounting Standard’/’Quality Control and
Engagement Standard’ becomes mandatory. Once an ‘Accounting
Standard’/’Quality Control and Engagement Standard’ becomes
mandatory, the concerned ‘Statement’ or the relevant part thereof
automatically stands withdrawn.
4
Refer footnote 3.
5
Refer footnote 2.
6
ibid
7
ibid
8
ibid

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4.10 In a situation where certain matters are covered by a
recommendatory Accounting Standard and subsequently, an
Accounting Standard is issued which also covers those matters, the
recommendatory Accounting Standard or the relevant portion thereof
will be considered as superseded from the date of the new Accounting
Standard coming into effect, unless otherwise specified in the new
Accounting Standard.
4.11 In a situation where certain matters are covered by a mandatory
Accounting Standard and subsequently, an Accounting Standard is
issued which also covers those matters, the earlier Accounting
Standard or the relevant portion thereof will be considered as
superseded from the date of the new Accounting Standard becoming
mandatory, unless otherwise specified in the new Accounting
Standard.
A. Quality Control and Engagement Standards
4.12 The main function of the Auditing and Assurance Standards
Board (AASB) is to review the existing auditing practices worldwide
and identify areas in which Standards on Quality Control, Engagement
Standards and Statements on Auditing need to be developed so that
these may be issued under the authority of the Council of the Institute.
4.13 The Council of the Institute of the Chartered Accountants of India,
at its 267th meeting, held on March 12-14, 2007, approved the
Revised Classification and Numbering Pattern of the Auditing and
Assurance Standards. The Council, at the aforesaid meeting, had also
approved the revised Preface, which replaces the existing Preface to
the Statements on Standard Auditing Practices (issued in 1983). This
Preface to the Standards on Quality Control, Auditing, Review, Other
Assurance and Related Services has been issued to facilitate
understanding of the scope and authority of the pronouncements of the
AASB issued under the authority of the Council of the Institute. The
Revised Preface makes it clear that it is the duty of the professional
accountants to ensure that the Standards/Statements/General
Clarifications are followed in the engagements undertaken by them.
The need for the professional accountants to depart from a relevant
requirement is expected to arise only where the requirement is for a
specific procedure to be performed and, in the specific circumstances
of the engagement, that procedure would be ineffective. If because of
that reason, a professional accountant has not been able to perform an
engagement procedure in accordance with any Standard/Statement/
General Clarification, he is required to document how alternative
procedures performed achieve the purpose of the procedure, and,

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unless otherwise clear, the reasons for the departure. Further, his
report should draw attention to such departures. However, a mere
disclosure in his report does not absolve a professional accountant
from complying with the applicable Standards/Statements/General
Clarifications. The revised Preface paves way for total revamp of the
existing structure of the Auditing and Assurance Standards (AASs)
issued by the Institute on the lines of the International Standards
issued by the International Auditing and Assurance Standards Board
(IAASB). The new Standards to be issued by the AASB henceforth
would be collectively known as Engagement Standards and would
comprise of Standards on Auditing (SAs), Standards on Review
Engagements (SREs), Standards on Assurance Engagements (SAEs)
and Standards on Related Services (SRSs). The revised Preface
necessitated the need to adopt a new numbering pattern for the
Engagement Standards. Whereas hitherto the auditing standards were
being allotted sequential numbers as and when they were issued, as
per the revised Classification and Numbering Pattern of the Auditing
and Assurance Standard, these standards would be categorised on
the basis of the specific aspect of audit that they deal with and
accordingly allotted the number. The members may refer to “Handbook
of Auditing Pronouncements – Compendium of Standards and
Statements” for the details of Quality Control and Engagement
Standards.
B. Accounting Standards
4.14 Accounting Standards are formulated by the Accounting
Standards Board and issued under the authority of the Council of the
Institute. As per the Preface to the Statements of Accounting
Standards (revised 2004), Accounting Standards are designed to apply
to the general purpose financial statements and other financial
reporting, which are subject to the attest function of the members of
the Institute. Accounting Standards apply in respect of any enterprise
(whether organized in corporate, co-operative or other forms) engaged
in commercial, industrial or business activities, irrespective of whether
it is profit oriented or it is established for charitable or religious
purposes. Accounting Standards will not, however, apply to enterprises
only carrying on the activities which are not of commercial, industrial or
business nature*
, (e.g., an activity of collecting donations and giving
*
It may be noted that the notified Companies (Accounting Standards) Rules, 2006 do not
mention the words ‘Commercial, industrial or business activities’, meaning thereby that
the notified Accounting Standards are applicable to all the companies, whether engaged
purely in commercial, industrial or business activities or not.

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them to flood affected people). Exclusion of an enterprise from the
applicability of the Accounting Standards would be permissible only if
no part of the activity of such enterprise is commercial, industrial or
business in nature. Even if a very small proportion of the activities of
an enterprise is considered to be commercial, industrial or business in
nature, the Accounting Standards would apply to all its activities
including those which are not commercial, industrial or business in
nature. The term General Purpose Financial Statements includes
balance sheet, statement of profit and loss, a cash flow statement
(wherever applicable) and statements and explanatory notes which
form part thereof, issued for the use of various stakeholders,
Governments and their agencies and the public. The Accounting
Standards become mandatory on the dates specified in the respective
Accounting Standards or notified by the Council in this behalf.
4.15 The Companies Act, 1956, as well as many other statutes require
that the financial statements of an enterprise should give a true and
fair view of its financial position and working results. This requirement
is implicit even in the absence of a specific statutory provision to this
effect. However, what constitutes ‘true and fair’ view has not been
defined either in the Companies Act, 1956, or in any other statute. The
Accounting Standards (as well as other pronouncements of the
Institute on accounting matters) seek to describe the accounting
principles and the methods of applying these principles in the
preparation and presentation of financial statements so that they give a
true and fair view.
4.16 Besides the requirement regarding ‘true and fair’ view under the
Companies Act, 1956, as discussed in para 1.13 above, Section 211 of
the Act requires the companies to prepare the profit and loss account
and balance sheet in accordance with the accounting standards. In this
regard, sub-Sections (3A), (3B) and (3C) have been inserted in
Section 211 of the principal Act, which read as follows:
“(3A) Every profit and loss account and balance sheet of the
company shall comply with the accounting standards.
(3B) Where the profit and loss account and the balance sheet of
the company do not comply with the accounting standards, such
companies shall disclose in its profit and loss account and balance
sheet, the following, namely:
(a) the deviation from the accounting standards;
(b) the reasons for such deviation; and
(c) the financial effect, if any, arising due to such deviation.

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(3C) For the purposes of this section, the expression “accounting
standards” means the standards of accounting recommended by
the Institute of Chartered Accountants of India constituted under
the Chartered Accountants Act, 1949 (38 of 1949), as may be
prescribed by the Central Government in consultation with the
National Advisory Committee on Accounting Standards established
under sub-section (1) of Section 210A:
Provided that the standards of accounting specified by the
Institute of Chartered Accountants of India shall be deemed to be
the Accounting Standards until the accounting standards are
prescribed by the Central Government under this sub-section."
In accordance with above mentioned Section 211(3C), the
Government of India, Ministry of Company Affairs (now Ministry of
Corporate Affairs), has issued Notification dated December 7, 2006,
prescribing Accounting Standards 1 to 7 and 9 to 29 as recommended
by the Institute of Chartered Accountants of India, which have come
into effect in respect of the accounting periods commencing on or after
the aforesaid date with the publication of these Accounting Standards
in the Official Gazette under the Companies (Accounting Standards)
Rules, 2006. It may be mentioned that the Accounting Standards
notified by the Government are virtually identical with the Accounting
Standards, read with the Accounting Standards Interpretations, issued
by the Institute of Chartered Accountants of India.*
For details of
Accounting Standard, the members may refer “Compendium of
Accounting Standards” issued by the Institute from time to time.
*
The Council issued an Announcement ‘Harmonisation of various differences between
the Accounting Standards issued by ICAI and the Accounting Standards notified by the
Central Government’, dealing with criteria for classification of entities, applicability of
Accounting Standards to Companies as per Government Notification and applicability of
Accounting Standards to non-corporate entities, etc. Announcement was published in
‘The Chartered Accountant’, February 2008 (Pages 1340-1351).

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CHAPTER 5
THE CHARTERED ACCOUNTANTS
ACT, 1949
(a) GENERAL PROVISIONS:-
5.1 The Preamble of the Chartered Accountants Act, 1949 (`the Act’)
sets the purpose of the Act as “An Act to make provision for the
regulation of the profession of Chartered Accountants.” The Institute of
Chartered Accountants of India was constituted under the Act whose
affairs are managed by the Council. The Council of the Institute has
been empowered to discharge the functions assigned to it under the
Act. The Chartered Accountants (Amendment) Act, 2006 has, inter
alia, introduced provisions for a new Disciplinary Mechanism within its
framework which would ensure well considered and expeditious
disposal of complaints against members on professional or other
misconduct. The provisions provided for appointment of a Director
(Discipline), to investigate complaints, constitution of a Board of
Discipline and Disciplinary Committee(s) to deal with cases and
providing for an Appellate Authority, to deal with appeals arising out of
decisions of the Board of Discipline and the Disciplinary Committee(s),
as the case may be.
5.2 Members who are deemed to be in practice
5.2.1 Every member of the Institute is entitled to designate himself as a
Chartered Accountant. There are two classes of members, those who
are in practice and those who are otherwise occupied.
5.2.2 In Section 2(2) of the Act, the term “to be in practice” has been
defined as follows:-
“A member of the Institute shall be deemed “to be in practice”
when individually or in partnership with Chartered Accountants in
practice, he, in consideration of remuneration received or to be
received-
(i) engages himself in the practice of accountancy; or
(ii) offers to perform or performs services involving the auditing
or verification of financial transactions, books, accounts or
records, or the preparation, verification or certification of
financial accounting and related statements or holds himself
out to the public as an accountant; or

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(iii) renders professional services or assistance in or about
matters of principle or detail relating to accounting
procedure or the recording, presentation or certification of
financial facts or data; or
(iv) renders such other services as, in the opinion of the Council,
are or may be rendered by a Chartered Accountant in
practice,
and the words “to be in practice” with their grammatical variations
and cognate expressions shall be construed accordingly
Explanation:- An associate or a fellow of the Institute who is a
salaried employee of a Chartered Accountant in practice or a firm
of such Chartered Accountants shall, notwithstanding such
employment, be deemed to be in practice for the limited purpose of
the training of articled assistants ".
5.2.3 Pursuant to Section 2(2) (iv) above, the Council has passed a
resolution permitting a Chartered Accountant in practice to render
entire range of “Management Consultancy and other Services” given
below:
The expression “Management Consultancy and other Services”
shall not include the function of statutory or periodical audit, tax (both
direct taxes and indirect taxes) representation or advice concerning tax
matters or acting as liquidator, trustee, executor, administrator,
arbitrator or receiver, but shall include the following:
*
(i) Financial management planning and financial policy
determination.
*(ii) Capital structure planning and advice regarding raising
finance.
*(iii) Working capital management.
*(iv) Preparing project reports and feasibility studies.
(v) Preparing cash budget, cash flow statements, profitability
statements, statements of sources and application of funds
etc.
(vi) Budgeting including capital budgets and revenue budgets.
(vii) Inventory management, material handling and storage.
(viii) Market research and demand studies.
*
Consideration of “tax implications” while rendering the services at (i), (ii),) (iii) and (iv) above
will be considered as part of “Management Consultancy and other Services”.

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(ix) Price-fixation and other management decision making.
(x) Management accounting systems, cost control and value
analysis.
(xi) Control methods and management information and
reporting.
(xii) Personnel recruitment and selection.
(xiii) Setting up executive incentive plans, wage incentive plans
etc.
(xiv) Management and operational audits.
(xv) Valuation of shares and business and advice regarding
amalgamation, merger and acquisition.
(xvi) Business Policy, corporate planning, organisation
development, growth and diversification.
(xvii) Organisation structure and behaviour, development of
human resources including design and conduct of training
programmes, work study, job-description, job evaluation and
evaluation of work loads.
(xviii) Systems analysis and design, and computer related
services including selection of hardware and development of
software in all areas of services which can otherwise be
rendered by a Chartered Accountant in practice and also to
carry out any other professional services relating to EDP.
(xix) Acting as advisor or consultant to an issue, including such
matters as:-
(a) Drafting of prospectus and memorandum containing
salient features of prospectus. Drafting and filing of
listing agreement and completing formalities with Stock
Exchanges, Registrar of Companies and SEBI.
(b) Preparation of publicity budget, advice regarding
arrangements for selection of (i) ad-media, (ii) centres
for holding conferences of brokers, investors, etc., (iii)
bankers to issue, (iv) collection centres, (v) brokers to
issue, (vi) underwriters and the underwriting
arrangement, distribution of publicity and issue material
including application form, prospectus and brochure and
deciding on the quantum of issue material (In doing so,
the relevant provisions of the Code of Ethics must be
kept in mind).

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(c) Advice regarding selection of various agencies
connected with issue, namely Registrars to Issue,
printers and advertising agencies.
(d) Advice on the post issue activities, e.g., follow up steps
which include listing of instruments and despatch of
certificates and refunds, with the various agencies
connected with the work.
Explanation: For removal of doubts, it is hereby clarified that
the activities of broking, underwriting and portfolio
management are not permitted.
(xx) Investment counseling in respect of securities [as defined in
the Securities Contracts (Regulation) Act, 1956 and other
financial instruments.] (In doing so, the relevant provisions
of the Code of Ethics must be kept in mind).
(xxi) Acting as registrar to an issue and for transfer of
shares/other securities. (In doing so, the relevant provisions
of the Code of Ethics must be kept in mind).
(xxii) Quality Audit.
(xxiii) Environment Audit.
(xxiv) Energy Audit.
(xxv) Acting as Recovery Consultant in the Banking Sector.
(xxvi) Insurance Financial Advisory Services under the Insurance
Regulatory & Development Authority Act, 1999, including
Insurance Brokerage.
5.2.4 Pursuant to Section 2(2) (iv) of the Chartered Accountants Act,
1949, read with Regulation 191 of Chartered Accountants Regulations,
1988 a member shall be deemed to be in practice if he, in his
professional capacity and neither in his personal capacity nor in his
capacity as an employee, acts as a liquidator, trustee, executor,
administrator, arbitrator, receiver, adviser or representative for costing,
financial or taxation matters or takes up an appointment made by the
Central Government or a State Government or a court of law or any
other legal authority or acts as a Secretary unless his employment is
on a salary-cum-full-time basis.
5.2.5 It is necessary to note that a person is deemed to be in practice
not only when he is actually engaged in the practice of accountancy
but also when he offers to render accounting services whether or not
he in fact does so. In other words, the act of setting up of an

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establishment offering to perform accounting services would
tantamount to being in practice even though no client has been served.
5.2.6 A member of the Institute is deemed to be in practice during the
period he renders ‘service with armed forces’.
5.3 Significance of the certificate of Practice
5.3.1 A member who is not in practice, is precluded from accepting
engagement to render services of any of the types normally prescribed
for a Chartered Accountant, even though for doing so, he does not
require special qualifications. For example, a member of the Institute
who was in practice till the 10th November, 1954, was by an order of
the High Court dated 11th November, 1954 suspended from practice
for a period of six months though not removed from membership. [Ref.
A.C. Kaher in Re:- Page 64 of Vol. IV(1) of Disciplinary Cases].
Pursuant to the order of the High Court, he was asked to surrender the
Certificate of Practice issued to him for the period of suspension which
he did. He, however, wrote to the Institute enquiring whether he could
practice as an income-tax practitioner under Section 61 of the Indian
Income-tax Act, 1922 being qualified otherwise than as a Chartered
Accountant to do so. In reply he was informed that if a member acted
as a representative in taxation matters, he would be deemed to be in
practice as a Chartered Accountant, and his attention in this
connection was drawn to Section 2(2) of the Chartered Accountants
Act and Regulation 78 of the Chartered Accountants Regulations
1949. He wrote back to the Institute saying that he was not “going in
for practice as Chartered Accountant but doing income-tax cases as
per the provisions of Section 61 (iv) (a) (b) and (c) of the Indian
Income-tax Act, 1922". He also stated that in his opinion Section 2(2)
of the Chartered Accountants Act did not supersede Section 61 of the
Indian Income-tax Act, and that he was entitled to practise as an
Income-tax practitioner even before becoming a member of the
Institute and he had only resumed this work since he could not practice
as a Chartered Accountant. He was again informed by the Institute that
he continued to be a member of the Institute but was only suspended
from practice under the Order of the High Court for a period of six
months, and that he should comply with the provisions of the Act and
the Regulations in so far as they were applicable to a member of the
Institute. The Commissioner of Income-tax, Punjab, PEPSU, Himachal
Pradesh, J & K also informed the Institute that the member concerned
had made similar representation to the Income-tax Department, that
although he was suspended from practice, he could still practice as an

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income-tax practitioner under Section 61 of the Indian Income-tax Act,
1922.
5.3.2 The above contention of the member was not accepted by the
Council on the following grounds:
“(a) Once the person concerned becomes a member of the
Institute, he is bound by the provisions of the Chartered
Accountants Act and its Regulations. If and when he
appears before the Income-tax Tribunal as an Income-tax
representative after having become a member of the
Institute, he could so appear only in his capacity as a
Chartered Accountant and a member of the Institute.
Having, as it were, brought himself within the jurisdiction of
the Chartered Accountants Act and its Regulations, he could
not set them at naught by contending that even though he
continues to be a member of the Institute and has been
punished by suspension from practice as a member, he
would be entitled, in substance, to practice in some other
capacity.
(b) A member of the Institute can have no other capacity in
which he can take up such practice, separable from his
capacity to practice as a member of the Institute."
5.3.3 A Chartered Accountant whose name has been removed from
the membership for professional and/or other misconduct, during such
period of removal, will not appear before the various tax authorities or
other bodies before whom he could have appeared in his capacity as a
member of this Institute.
5.4 A Member in practice is prohibited from using a
designation other than Chartered Accountant
5.4.1 Under Section 7 of the Chartered Accountants Act, 1949 a
member in practice cannot use any designation other than that of a
Chartered Accountant, nor can he use any other description, whether
in addition thereto or in substitution therefor, but a member who is not
in practice and does not use the designation of a Chartered
Accountant may use any other description. Nevertheless a member in
practice may use any other letters or description indicating
membership of Accountancy Bodies which have been approved by the
Council (See Appendix ‘A’) or of bodies other than Accountancy
Institutes so long as such use does not imply adoption of a designation
and/or does not amount to advertisement or publicity.

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5.4.2 For example, though a member cannot designate himself as a
Cost Accountant, he can use the letters A.I.C.W.A. after his name,
when he is a member of that Institute.
5.4.3 The members may apply for and obtain registration as category
IV Merchant Banker under the SEBI’s rules and regulations and act as
Advisor or Consultant to an issue. In client Companies’ offer
documents and advertisements regarding capital issue, name and
address of the Chartered Accountant or firm of Chartered Accountants
acting as Advisor or Consultant to the Issue could be indicated under
the caption “Advisor/Consultant to the Issue”. However, the name and
address of such Chartered Accountant/firm of Chartered Accountants
should not appear prominently. Chartered accountants or firms of
Chartered Accountants acting as Advisor or Consultant to an Issue
should ensure that the description ‘Merchant Banker’ is not associated
with their names in the offer documents and/or advertisements
regarding capital issue of their client Companies. The mention of the
name of Chartered Accountant/firm under the caption ‘Merchant
Banker’ could be misleading, as there were four categories of
Merchant Bankers and the members of the profession were permitted
to register only as category IV ‘Merchant Bankers’, i.e. to act only as
Advisor or Consultant to an Issue. Further, such members and firms
should not use the designation of either ‘Merchant Banker’ or
‘Advisor/Consultant to Issue’ in their own letter heads, visiting cards,
professional documents, etc. As per Regulation 3(2A) of SEBI
(Merchant Bankers) Regulations, 1992, with effect from 9th December,
1997 registration as category IV Merchant Banker has been dispensed
with.
5.5 Disabilities for purpose of Membership
5.5.1 Section 8 of the Act enumerates the circumstances under which
a person is debarred from having his name entered in or borne on the
Register of Members, as follows:
(i) If he has not attained the age of twenty one years at the
time of his application for the entry of his name in the
Register; or
(ii) If he is of unsound mind and stands so adjudged by a
competent court; or
(iii) If he is an undischarged insolvent; or
(iv) If he, being a discharged insolvent, has not obtained from
the court a certificate stating that his insolvency was caused
by misfortune without any misconduct on his part; or

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(v) If he has been convicted by a competent Court whether
within or without India, of an offence involving moral
turpitude and punishable with transportation or
imprisonment or of an offence, not of a technical nature,
committed by him in his professional capacity unless in
respect of the offence committed he has either been granted
a pardon or, on an application made by him in this behalf,
the Central Government has, by an order in writing,
removed the disability; or
(vi) If he has been removed from membership of the Institute on
being found on inquiry to have been guilty of professional or
other misconduct:
Provided that a person who has been removed from
membership for a specified period, shall not be entitled to
have his name entered in the Register until the expiry of
such period.
5.5.2 Failure on the part of a person to disclose the fact that he suffers
from any one of the disabilities aforementioned would constitute
professional misconduct. The name of the person who is found to have
been subject at any time to any of the disabilities aforementioned, can
be removed from the Register of Members by the Council.
5.6 Removal from the Register
5.6.1 Section 20 of the Act provides that the Council may remove from
the Register the name of any member of the Institute—
(a) who is dead; or
(b) from whom a request has been received to that effect; or
(c) who has not paid any prescribed fee required to be paid by
him; or
(d) who is found to have been subject at the time when his
name was entered in the Register, or who at any time
thereafter has become subject, to any of the disabilities
mentioned in Section 8, or who for any other reason has
ceased to be entitled to have his name borne on the
Register.
5.6.2 This section also provides that it is mandatory to the Council to
remove from the Register the name of any member in respect of whom
an order has been passed under this Act for removing him from
membership of the Institute.

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5.7 Procedure in Inquiries for Disciplinary Matters
relating to misconduct of the members of the
Institute
5.7.1 The Chartered Accountants (Amendment) Act 2006, has for the
first time added the provisions for imposition of fine as a punishment
for the misconduct.
5.7.2 Sections 21, 21A, 21B, 21C, 22-A and 22-G of the Act read with
The Chartered Accountants (Procedure of Investigations of
Professional and Other Misconduct of Cases) Rules, 2007 have laid
down the following procedure in regard to the investigation of
misconduct of members which has been summarized as under:-
(a) On receipt of any information or complaint along with the
prescribed fee, the Director (Discipline) will process the
same for its registration and shall form a prima facie opinion
on the alleged misconduct.
(b) After the prima facie opinion is formed, the Director
(Discipline) shall place the matter before the Board of
Discipline or Disciplinary Committee in respect of the cases
relating to the First Schedule or the Second Schedule to the
Act as the case may be. Where the matter relates to both
the Schedules, it shall be placed before the Disciplinary
Committee only. Where the Director (Discipline) is of the
opinion that there is no prima facie case the Board of
Discipline may, if agrees with the opinion of the Director
(Discipline) close the matter or in case of disagreement,
may advise the Director (Discipline) to further investigate the
matter. Where the Director (Discipline) is of the opinion that
there is a prima facie case, further action will be taken by
the Board of Discipline or Disciplinary Committee, as the
case may be.
(c) The Board of Discipline (in respect of matters relating to
First Schedule) has been empowered to pass the following
orders:-
(i) reprimand the member
(ii) remove the name of the member from Register upto a
period of three months
(iii) impose such fine which may extend to rupees one lakh.
(d) The Discipline Committee (in respect of matters relating to

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Second Schedule or Both Schedules when the misconducts
are related to both the Schedules) has been empowered to
pass the following orders:-
(i) reprimand the member
(ii) remove the name of the member from the Register
permanently or for such period as it may think fit.
(iii) impose such fine which may extend to rupees five
lakhs.
(e) The Director (Discipline), Board of Discipline and the
Disciplinary Committee have powers of Civil Court under the
Code of Civil Procedure, 1908 in respect of the following
matters, namely,
(i) summoning and enforcing attendance of any person
and examining him on oath;
(ii) discovery and production of any document; and
(iii) receiving evidence on affidavit.
(f) Any member of the Institute aggrieved of any order of the
Board of Discipline or the Disciplinary Committee may prefer
an appeal under Section 22G to the authority constituted
under the provisions of Section 22A – 22D of the Act.
5.8 Conduct of the members in any other
Circumstances:
S.22. Professional or other Misconduct defined
For the purposes of this Act, the expression “Professional or other
misconduct” shall be deemed to include any act or omission
provided in any of the Schedules, but nothing in this section shall
be construed to limit or abridge in any way the power conferred or
duty cast on the Director (Discipline) under sub-section (1) of
section 21 to enquire into conduct of any member of the Institute
under any other circumstances.
(1) A member is liable to disciplinary action under Section 21 of the
Chartered Accountants Act, if he is found guilty of any professional or
“other misconduct”. This provision empowers the Director (Discipline)
to enquire into any conduct of a member under any other
circumstance. This is considered necessary because a Chartered
Accountant is expected to maintain the highest standards and integrity
even in his/her personal affairs and any deviation from these

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standards, would expose him/ her to disciplinary action. For example,
a member who is found to have forged the will of a relative, may be
liable to disciplinary action even though the forgery may not have been
done in the course of his professional duty.
(2) The question whether a particular act or omission constitutes
“misconduct in any other circumstances” has to be decided on the
facts and circumstances of each case. The judgement dated 10th
September, 1957 of the Supreme Court in “Council of the Institute of
Chartered Accountants of India and another vs. B. Mukherjea” (AIR
1958 SC 72) is also relevant. After examining the nature, scope and
extent of the disciplinary jurisdiction, which can be exercised under the
provisions of the Act, the Supreme Court observed as under:-
“We, therefore, take the view that, if a member of the Institute is
found, prima facie, guilty of conduct, which, in the opinion of the
Council renders him unfit to be a member of the Institute, even
though such conduct may not attract any of the provisions of the
Schedule, it would still be open to the Council to hold an enquiry
against the member in respect of such conduct and a finding
against him, in such an enquiry, would justify appropriate action
being taken by the High Court.”
(3) Some decided cases, where a member has been found guilty of
the misconduct in any other circumstances (earlier “other misconduct”)
under the aforesaid provisions rendering himself unfit to be a member
are:-
Where a Chartered Accountant admitted before the Examination
Committee that he had issued a certificate to a person that he
worked with him knowing it to be false. - Held he was guilty of other
misconduct.
(K.C. Jain Satyavadi in Re:- Page 98 of Vol. II of the Disciplinary
Cases and pages 221-222 of December, 1955 issue of the
Institute’s Journal - Judgement delivered on 7th November, 1955).
Where a Chartered Accountant retained the books of account and
documents and failed to hand them over to the clients regardless
of their repeated requests. - Held he was guilty of “other
misconduct”.
(Jamnadas Harakchand and Others vs. P.C. Parekh - Page 492 of
Vol. IV of the Disciplinary Cases and pages 26-44 of July, 1967
issue of the Institute’s Journal - Judgement delivered on 12th
January, 1967).

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Where a paid assistant on whom the employer had implicit reliance
took absolutely no steps whatsoever to check the cash balance
facilitating and resulting in serious defalcations. Though no doubt
he did pass on some information as to what he was doing to his
employer he did not mention any fact from which the employer
could have known that he had been so grossly negligent. - Held he
was guilty of “other misconduct” as envisaged in Section 21 of the
Act.
(D.B. Parelkar in Re:- Page 805 of Vol. IV of the Disciplinary Cases
and pages 502-504 of March, 1969 issue of the Institute’s Journal -
Judgement delivered on 27th November, 1968).
Where a Chartered Accountant had exercised undue influence and
coercion in securing from the Company payment of his fee and the
letter of appointment for the next year. -Held he was guilty of
professional misconduct of a type not specified in the Schedules.
Where a Chartered Accountant committed acts of commission and
omission in regard to the minute book of a Company containing the
minutes of the proceedings of the annual general meeting
purported to be held on a particular date thus knowingly made a
false record. - Held he was guilty of professional misconduct for
acts not specified in the Schedules.
(Qaroon Trading and Finance Pvt. Ltd. vs. Laxmi Narain Saxena
and Jitendra Mohan Chadha - Page 828 of Vol. IV of the
Disciplinary Cases and pages 47-49 of July, 1969 issue of the
Institute’s Journal - Judgement delivered on 12th February, 1969).
Where a Chartered Accountant had misrepresented to a firm while
seeking employment as an Accountant that he had worked for 3
years as a senior Assistant with another firm. Held he was guilty of
“other misconduct” in terms of Section 21 of the Act.
(B.K. Chakraborty in Re:- Page 872 of Vol. IV of the Disciplinary
Cases and pages 254-255 of October, 1969 issue of the Institute’s
Journal - Judgement delivered on 19th July, 1969).
A Chartered Accountant was charged with misconduct for having
used the services of his audit clerk during the period of his audit
service for promoting the agricultural activities of the former. The
Disciplinary Committee though satisfied from the evidence
recorded that the audit clerk was required to attend to the
agricultural activities of his employer during office hours, very
regrettably came to the conclusion that engaging the services of
the audit clerk for agricultural operations not casually but for a

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considerable time during his service as an audit clerk did not
render the member guilty of professional or other misconduct. The
Council, having found the member not guilty of any professional or
other misconduct, dismissed the complaint.
On appeal made by the audit clerk against the order of the Council,
the High Court held that the conduct of the member in having
asked the audit clerk to attend to his agricultural work instead of
giving training to him to make him an auditor clearly amounted to
“other misconduct”.
(P.N.S. Murthy vs. D.V. Lakshmana Rao - Page 26 of Vol. V of the
Disciplinary Cases and page 579 of June, 1975 issue of the
Institute’s Journal - Judgement delivered on 21st March, 1975).
A Chartered Accountant being the Secretary & Treasurer of the
Central India Regional Council of the Institute misappropriated a
large amount and utilised it for his personal use. - Held that the
Chartered Accountant was guilty of charge of misappropriation and
the Court directed the removal of his membership for a period of
five years. It was observed that warnings and reprimands in such
cases would undermine the basic purpose of Sections 21 and 22 of
the Act and instead of acting as a deterrent for such misconduct
may embolden erring members to entertain hopes of lenient
punishment.
(J.C. Tandon in Re:- Published at pages 548-549 of December,
1979 issue of the Institute’s Journal and page 26 of Vol. VI(1) of
Disciplinary Cases - Judgement delivered on 6th August, 1979).
A Chartered Accountant issued consumption certificate of a firm on
the strength of which Export Authorities issued licence for
importing raw material and components. The Chartered
Accountant failed to verify the certificate inspite of repeated
enquiries raised by the Export Authorities. - Held the Chartered
Accountant was guilty of misconduct by not replying within a
reasonable time and without a good cause to the letters of the
Deputy Chief Controller of Imports & Exports. It was his implicit
duty to verify the certificate issued by him in the case of an inquiry
by Public Authority and in not doing so he committed an act of
impropriety.
The words “professional or other misconduct” used in Section
21(1) are meaningful as they widen the authority of the Council not
only to inquire into the professional misconduct of the members,
but misconduct otherwise also.

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(Sri Gopal Shukla in Re:- Published at pages 546-548 of
December, 1979 issue of the Institute’s Journal and page 32 of
Vol. VI(1) of Disciplinary Cases - Judgement delivered on 6th
August, 1979).
Where a Chartered Accountant, being a tenant of premises, was
searched in connection with the taxation matter of the owner of the
said premises.
During the search, Income-tax assessment records of a Hindu
Undivided Family (HUF) were found inside the steel almirah in the
bedroom of the said Chartered Accountant. When interrogated, he
explained that he had requested the concerned Income-tax Officer
for one HUF assessment record to enable him to know how HUF
accounts were prepared and maintained and, according to him the
Income-tax Officer obliged him by handing over the said
assessment records. The Income-tax Officer, however,
categorically denied having passed on the Income-tax assessment
records to him.
The Council was of the opinion that the possession of Government
records by a Chartered Accountant constitutes “other misconduct”
under Section 21 of the Chartered Accountants Act, 1949. A
Chartered Accountant is not expected to be in possession of
Government records or to retain them with him. Such an action on
the part of a Chartered Accountant is grossly improper and
unworthy of his status as a Chartered Accountant and is against
the ethics of the profession. The said Chartered Accountant could
not give any satisfactory explanation as to how the records came
into his possession and also why he did not return the records to
the Department immediately when he came to know that the
records came to be in his possession. He was held guilty of “other
misconduct”.
(S.K. Bhaumik in Re:- Page 568 of Vol. VI(1) of Disciplinary Cases
- Judgement dated 5th March, 1990).
The Respondent, inter alia, had used objectionable, derogatory
and abusive language. He made irrelevant, incoherent,
irresponsible and insane statements, expressions in all his
correspondence with the complainant. He was, inter alia, held
guilty of “other misconduct”.
(K. Bhattacharjee vs. B.K. Chakraborty - Page 86 of Vol. VII(1) of
Disciplinary Cases – Council’s decision dated 11th to 13th
February, 1988 - Judgement dated 10th June, 1996).

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The Respondent who was allotted the audit work of three branches
of the Complainant-Bank for a year submitted bogus bills/receipts
for claim of halting allowance expenses for audit of said branches,
as found on the investigation by the Complainant-Banks Vigilance
Department. He was held guilty of “other misconduct”.
(State Bank of Patiala vs. Rishi K. Gupta – Page 291 of Vol. VII(1)
of Disciplinary Cases – Council’s decision dated 5th & 6th August,
1991 - Judgement dated 20th July, 2000).
The Respondent was entrusted with the work of incorporation of a
Company. He was also entrusted with the work of filing the return
for registration of the charge in Form No. 8 with the Registrar of
Companies. After making enquiries, he made available a certificate
of incorporation issued by the Registrar of Companies. But on
enquiry from the Office of the Registrar of Companies, it was learnt
that the name of the said Company, was not borne on the Register
of Companies and Form No. 8 was not traceable in the Registrar’s
office. He had later admitted that the above certificate was fake,
forged and not genuine. He had not filed any of the documents with
the Registrar of Companies. He had failed to make available or
return the documents despite requests on the pretext that the
same were not traceable. He had provided to the Complainant a
communication issued by the Office of the Registrar of Companies
which had also been discovered to be fake. He was, inter alia, held
guilty for “other misconduct”.
(Deepak Pahwa vs. A.K. Gupta – Page 346 of Vol. VII (1) of
Disciplinary Cases – Council’s decision dated 6th September, 1995
- Judgement dated 4th September, 2000).
Where the Respondent published an advertisement in the
newspaper with a malafide intention to malign the Complainant.
Held that Respondent was inter alia guilty of “other misconduct”.
(S.C. Katyal vs. O.P.C. Jain & O.P. Sharma –Page 1 of Vol. VIII-1 -
21(6) of Disciplinary cases – Council’s decision dated 25th
to 27th
February, 1999 - Judgement delivered on 27th
April, 2001 and
published in the September, 2001 issue of Journal at pages 309 to
311).
A Chartered Accountant while in employment with a Corporation
conveyed acceptance as statutory auditor to the complainant and
give a wrong declaration to the bank that he was a full time
practicing Chartered Accountant and not employed elsewhere with
an intention to obtain bank branch audits and derive undue

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benefits. The Respondent having committed an act which is
unbecoming a Chartered Accountant was therefore inter alia guilty
of “Other misconduct”.
(The Senior Manager, Punjab National Bank vs. N.K. Chopra –
Page 121 Vol. VIII-1-21 (6) of Disciplinary Cases – Council’s
decision dated 22nd
July, 1997 - Judgement delivered on 20th
May,
2003 and published in the December, 2003 issue of Institute’s
Journal at page 686).
The Respondent authored a book titled ‘Tax Planning for Secret
Income (Black Money)’. On going through the preface as well as the
contents of the book it was seen that the author had explained in detail
the various methods of creation of black money followed by different
sections of society and the methods, legal as well as illegal, generally
adopted to convert the same into white. Since it appeared that the title
of the book, its preface, its contents and in totality the book was likely
to create an impression in the eyes of common man that Chartered
Accountants are experts in helping in the creation of black money and
its conversion into white money though there is no direct reference as
such to the Chartered Accountants; this might tend to lower the image
of the profession in the public eyes. Held that the Respondent was
guilty of “other misconduct”.
The Hon’ble Gujarat High Court in its judgement dated 14th
February, 2003 observed that:
“… Having regard to the old age of the Respondent, ailments that
he is suffering from, repentance that he has shown in the Court
and the time lag that has elapsed, as also his statement that he
has never published any such writing after the publication of the
said book, in our opinion, interest of justice will be met if the
Respondent is removed forthwith from the membership of the
Institute for a period of five years. We accordingly, while upholding
the Respondent guilty of misconduct, direct that the Respondent
be removed forthwith from the membership of the Institute for a
period of five years. The reference stands disposed of accordingly
with no order as to costs.
At this stage, the learned counsel for the Respondent submits that
the operation of this order may be stayed to enable the
Respondent to approach the higher forum. In our opinion, in the
facts and circumstances of the case, it will be improper for us to
stay the operation of this order when the removal of the
Respondent was due long back, having regard to the serious
nature of the misconduct committed by him.”

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The Respondent filed a review petition and special Leave Petition
against the above judgement of the Gujarat High Court, in the
Supreme Court. The Supreme Court, by its judgement dated 6 August
2003, dismissed the review petition. The text of the order is given
below:
"We have gone through the review petition and the connected
papers. We do not find any good reason to review our order. It
lacks merits. The review petition is therefore dismissed."
(P.C. Parekh in Re: –Page 63 Vol. VIII-1-21(6) of Disciplinary
Cases – Judgement of the Gujarat High Court dated 14th
February
2003 and judgement of Supreme Court dated 6th
August, 2003 and
published in the February, 2004 issue of Institute’s Journal at
pages 869 to 890).
Where a Chartered Accountant filed two separate returns of
income in his individual capacity viz. one for the income from the
profession as Chartered Accountant for and from the A.Y. 1965-66
to 1986-87 and another for the income from LIC Commission for
and from A.Y. 1967-68 to 1986-1987. Thus, the Respondent
evaded substantial income-tax and was liable for punishment. The
Respondent was also guilty of committing fraud by giving two
separate names to evade payment of the proper amount of
income-tax. Held that the Respondent was guilty of “Other
misconduct”.
(The Chief Commissioner (Administration) & Commissioner of
Income - Tax, Karnataka-I, Bangalore vs. H. Mohanlal Giriya- Page
137 Vol. VIII-1-21(6) of Disciplinary cases).
The Respondent had fabricated and filed challans for advance tax
in respect of certain clients and relatives and then filed their returns of
Income showing nominal income so as to claim refund against
advance tax paid. On investigation it was found by the Income Tax
Department that the Respondent had changed the amount of advance
tax paid in copies of challans that are retained by the assessee and
sent to the Department alongwith the return. The returns also, in many
cases, were verified by him. The address given in the returns was his
own so that the refund vouchers could reach him and he had, in fact,
encashed these vouchers by opening bank accounts in the names of
the assessees. The Respondent was said to have admitted having
committed this forgery etc. thereby defrauding the exchequer to the
tune of Rs. 15 lakhs. As per FIR filed by the Income Tax Officer, the
Respondent was arrested and was remanded first to police custody
and thereafter to judicial custody. Held that the Respondent was guilty

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of "Other misconduct". The Council also decided to recommend to the
High Court that the name of the Respondent be removed permanently
from the Register of Members.
The Hon’ble Gujarat High Court while delivering the order
observed that:
“…The petitioner Council is one such representative body charged
with responsibility of ensuring discipline and ethical conduct
amongst its members and impose appropriate punishment on
members who are found to have indulged in conduct which lowers
the esteem of the professionals as a class. Adopting the aforesaid
approach, it is not possible to find any infirmity, either on facts or in
law, in the reasoning and the findings recorded by the Disciplinary
Committee and the petitioner Council by holding the Respondent
as being guilty of "other misconduct" under Section 21 read with
Section 22 of the Act and hence, there is no necessity to interfere
with the punishment recommended. It has been proved beyond
reasonable doubt, in the facts and circumstances of the case and
by the evidence on record, that the Respondent and only the
Respondent, is guilty of "other misconduct" and hence liable to
punishment under section 21(6)(c) of the Act i.e. removal from
membership of the Institute permanently.
The reference is accordingly disposed of with a direction to the
petitioner Council to remove the Respondent from the membership
of the Institute permanently.”
(Commissioner of Income - Tax, Gujarat -III, Ahmedabad -vs.-
Mukesh R. Shah –Page 161 Vol. VIII-1-21(6) of Disciplinary Cases
– Judgement delivered dated 11th
November 2003 and published in
the January, 2004 issue of Institute’s Journal at pages 764 to 781).
While investigating into cases of some fraudulent imports and
clearance, the Custom Department came across a case of one
Chartered Accountant who issued false certificates to several
parties for past exports for monetary consideration, without
verifying any supporting records or documents. On the strength of
these false certificates, certain unscrupulous importers were able
to obtain import license, effect imports and clear these free of duty,
perpetuating a fraud on Government revenue and depriving the
Government of its legitimate revenue to the tune of several Crores
of Rupees. In his statement recorded under section 108 of the
Custom Act, 1962, the Respondent had also confessed his role in
this affairs as well as the fact that he also got a share in this deal of
issuing false certificates. Held that he was guilty of “Other

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Misconduct”.
(Additional Collector of Customs, Department of Customs vs. K.N.
Kanodia:- Page 691 Vol. VIII-1-21(6) of Disciplinary cases-
Judgement dated 12th
August, 2004).
Members are urged in their own interest to keep the aforesaid
provisions in view and maintain requisite standards both in their
professional and other conduct.
A Chartered Accountant demanded and received large sums of
money towards advance payment and claimed expenses beyond
the eligibility/entitlement as per RBI guidelines and failed to refund
the unspent money. The Council held him guilty of “other
misconduct” in terms of Section 22 read with Section 21 of the
Chartered Accountants Act, 1949 which was accepted by the High
Court.
(S.N. Banerjee, Dy. General Manager, State Bank of Hyderabad
Vs. Lokesh Dhawan-Page323 Vol.IX -1-21(6)of Disciplinary cases-
Council’s decision dated 23rd
June, 2001 and Judgement of High
Court dated 5th
November, 2007).
A Chartered Accountant was engaged by his client for getting
financial assistance from bank, but for disbursement of a term loan
in favour of his client he issued a false certificate. The act of
issuing the vague certificate by him contributed and enabled the
officers of the bank to have paper formalities completed which
amounted to aiding and abetting by the Chartered Accountant, for
disbursement of the loan and for this act he was held guilty of
“other misconduct”. The High Court confirmed the decision of the
Council.
(Supdt. of Police, CBI, ACB, New Delhi vs. Dayal Singh - Page 177
& 288 Vol. IX-1-21(60) of Disciplinary cases- (25-CA(55)/92),
Decision of the Council dated 30th
April, 2001, 216th
Meeting of the
Council and Judgement of High Court dated 10th
May, 2007).
A Chartered Accountant, appointed as concurrent auditor of a
bank, firstly used his influence for getting some cheque purchased
and thereafter failed to repay the loan/overdraft. He acted in an
irresponsible manner and had not discharged his duties
professionally. Being a Concurrent Auditor used his position to
obtain the funds and failed to repay the same to the Complainant.
Though such conduct may not directly attract any particular
clause(s) specified in any of the schedule(s) of the Chartered
Accountants Act, 1949, yet such act is certainly unpardonable. The

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Council held him guilty of “other misconduct” under Section 22
read with Section 21 of the Chartered Accountants Act, 1949 and
the High Court further confirmed the same.
(Manager, Punjab National Bank vs. M.K. Sachdeva- page 273
Vol-IX-1-21(6), Decision of the Council dated 16th
April, 2004, 242nd
Meeting of the Council and Judgement of High Court dated 7th
August, 2007).
Where a Chartered Accountant had not completed his audit work
of the accounts of a Company, in spite of several reminders and
payment of advance fee of audit, the Council held him guilty under
Clause (7) of Part I of the Second Schedule and ‘other misconduct’
within the meaning of Section 21 read with Section 22. The High
Court also accepted the Council’s decision and ordered to remove
his name from the Register of members for a period of one year.
(R. K. Goswami, Administrator, Delhi Nagrik Sekhari Bank Ltd. Vs.
M/s Dayal Singh & Co – Page 288 Vol.IX -1-21(6)of Disciplinary
cases, Council’s decision dated 16th
April, 2004 and Judgement of
High Court dated 7th
August, 2007).
A Chartered Accountant was held guilty under Clause (7) of Part I
of the Second Schedule and “other misconduct as being a tax
consultant and a tax auditor he failed to appear before the Income
Tax Authorities for his client even after having instructions from his
client. In spite of being fully paid for his professional services and
provided all the books of account and other documents, he failed to
satisfy the Income Tax Officer because of his negligence and
careless attitude. There were several anomalies in the books of
account. The opening and closing balances as per the bank
statements and pass-books were not re-produced correctly in the
cash book.
(R.C. Dutta Vs. Kailash C. Mishra - Page 143 Vol.IX-1-21(6) of
Disciplinary cases-, Council’s decision dated 5th
January, 2005 and
Judgement of High Court dated 1st
March, 2007).
5.9 Penalty for falsely claiming to be a Member etc.
Section 24 provides that:-
“Any person who -
(i) not being a member of the Institute-
(a) represents that he is a member of the Institute; or
(b) uses the designation Chartered Accountant; or

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(ii) being a member of the Institute, but not having a certificate of
practice, represents that he is in practice or practices as a
Chartered Accountant, shall be punishable on first conviction
with fine which may extend to one thousand rupees, and on
any subsequent conviction with imprisonment which may
extend to six months or with fine which may extend to five
thousand rupees, or with both.”
In a case under the above provision, the Court of Additional Chief
Judicial Magistrate had by its judgement dated 18th July, 1989 found
the accused guilty under Section 24(i)(a) & (b) of the Chartered
Accountants Act and Section 465 of the Indian Penal Code. The Court
imposed a fine on the accused and in the event of his failure to pay the
fine, sentenced to rigorous imprisonment for three months. (Case of
Prem Batra decided on 18.7.1989 and published in September, 1989
issue of the Institute’s Journal at Page 246).
5.10 Companies not to engage in accountancy
Section 25 provides that:-
“(1) No company, whether incorporated in India or elsewhere, shall
practise as chartered accountants.
(2) If any company contravenes this provision then, without
prejudice to any other proceedings which may be taken against the
company, every director, manager, secretary and any other officer
thereof who is knowingly a party to such contravention shall be
punishable with fine which may extend on first conviction to one
thousand rupees, and on any subsequent conviction to five
thousand rupees.”
5.11 Unqualified persons not to sign documents
Section 26 provides that:-
“(1) No person other than a member of the Institute shall sign any
document on behalf of a chartered accountant in practice or a firm
of such chartered accountants in his or its professional capacity.
(2) Any person contravenes this provision shall, without prejudice
to any other proceedings, which may be taken against him, be
punishable on first conviction with a fine not less than five
thousand rupees but which may extend to one lakh rupees, and in
the event of a second or subsequent conviction with imprisonment
for a term which may extend to one year or with fine not less than
ten thousand rupees but which may extent to two lakh rupees or
with both.”

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5.12 Maintenance of Branch Offices
5.12.1 In terms of Section 27 of the Act if a Chartered Accountant in
practice or a firm of Chartered Accountants has more than one office in
India, each one of such offices should be in the separate charge of a
member of the Institute. Failure on the part of a member or a firm to
have a member in charge of its branch and a separate member in case
of each of the branches, where there are more than one, would
constitute professional misconduct.
However, the Council has given exemption to members practising
in hill areas subject to certain conditions. The conditions are:-
1. Such members/firms be allowed to open temporary offices in a
city in the plains for a limited period not exceeding three
months in a year.
2. The regular office need not be closed during this period and all
correspondence can continue to be made at the regular office.
3. The name board of the firm in the temporary office should not
be displayed at times other than the period such office is
permitted to function as above.
4. The temporary office should not be mentioned in the letter-
heads, visiting cards or any other documents as a place of
business of the member/firm.
5. Before commencement of every winter it shall be obligatory on
the member/firm to inform the Institute that he/it is opening the
temporary office from a particular date and after the office is
closed at the expiry of the period of permission, an intimation to
that effect should also be sent to the office of the Institute by
registered post.
5.12.2 The above conditions apply to any additional office situated at a
place beyond 50 kms from the municipal limits in which any office is
situated.
5.12.3 It is necessary to mention that the Chartered Accountant in
charge of the branch of another firm should be associated with him or
with the firm either as a partner or as a paid assistant. If he is a paid
assistant, he must be in whole time employment with him.
5.12.4 However, a member can be in charge of two offices if they are
located in one and the same accommodation. In this context, the
Council’s decisions are set out below:
(1) Definition of Office – “A place where a name-board is fixed

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or where such place is mentioned in the letter-head or any
other documents as a place of business.”
(2) With regard to the use of the name-board, there will be no
bar to putting up of a name-board in the place of residence
of a member with the designation of Chartered Accountant,
provided it is a name-plate or a name-board of an individual
member and not of the Firm.
(3) The requirement of Section 27 in regard to a member being
in charge of an office of a Chartered Accountant in practice
or a firm of such Chartered Accountants shall be satisfied
only if the member is actively associated with such office.
Such association shall be deemed to exist if the member
resides in the place where the office is situated for a period
of not less than 182 days in a year or if he attends the said
office for a period of not less than 182 days in a year or in
such other circumstances as, in the opinion of the Executive
Committee, establish such active association.
(4) In view of the Council’s decision, however, the exemption is
granted under proviso to Section 27(1) of the Chartered
Accountants Act, 1949 to a member or a firm of Chartered
Accountants in practice to have a second office without such
second office being under the separate charge of a member
of the Institute, provided (a) the second office is located in
the same premises, in which the first office is located or (b)
the second office is located in the same city, in which the
first office is located or (c) the second office is located within
a distance of 50 km. from the municipal limits of a city, in
which the first office is located. A member having two offices
of the type referred to above, shall have to declare, which of
the two offices is his main office, which would constitute his
professional address.
(5) The expression “member” in the above context shall mean,
where more than one member is designated as in charge of
an office, then any such member and in other cases more
than one member where a change in the designated
member in charge of an office takes place during the year.
Where a Chartered Accountant kept the branch office without
putting a member in charge thereof thereby committing a breach of
clause (i) of Section 27 of the Act. - Held that the fault was only
technical which had been made good and ordered the papers to be
filed.

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(P.N. Mehta in Re:- Page 774 of Vol. IV of the Disciplinary Cases
and pages 396-399 of February, 1969 issue of the Institute’s
Journal - Judgement delivered on 12th November, 1968).
5.13 Procedure with regard to noting by the
Institute of retirement of Partner(s) of a firm
1. On receipt of a notice of retirement from partner(s) of a firm, a
communication would be sent to the other partner(s) of the firm
to confirm within a specified period about the retirement of the
partner(s) who had sent the notice to the Institute.
2. In case the other partner(s) do not confirm the retirement within
the specified date or do not send the confirmation before the
said date, the retirement of the partner(s) having sent the
notice of the retirement from the firm would be noted in the
records of the Institute.
3. In case of intimation of existence of dispute between/among
partners received from the firm/other partners a suitable note
would be kept in the records of the Institute and retirement will
not be noted and the fact shall be mentioned in the entry on
record of firms and firm constitution certificate, etc.
4. The fact that there was dispute among the partners of a firm
would also be intimated to the C&AG/RBI while furnishing the
particulars of the firm for empanelment of bank/C&AG audit.
(b) SCHEDULES TO THE ACT:-
5.14 Professional/other misconducts by the members
as provided in Schedules
The expression “professional or other misconduct” within the
meaning of Section 22 of the Chartered Accountants Act shall be
deemed to included any act(s) or omission(s) provided in any of the
two Schedules viz the First Schedule and the Second Schedule to the
Act but nothing in that section shall be construed to limit or abridge in
any way the power conferred or duty cast on the Director(Discipline)
under Subsection (1) of Section 21 to enquire into the conduct of any
member of the Institute under any circumstances.
The First Schedule is divided into four parts. Part I of the First
Schedule deals with the professional misconduct of a member in
practice which would have the effect generally of compromising his
position as an independent person. Part II deals with professional

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misconduct of members of the Institute in service. Part III deals with
the professional misconduct of members of the Institute generally and
Part IV deals with other misconduct of Members of the Institute
generally.
The Second Schedule is divided into three parts. Part I deals with
professional misconduct in relation to a member in practice and Part II
deals with professional misconduct of members of the Institute
generally and Part III deals with other misconduct of Members of the
Institute generally.
The implications of the different clauses in the Schedules are
discussed below:-
5.15 The First Schedule
A member who is engaged in the profession of accountancy whether
in practice or in service should conduct/restrict his action in
accordance with the provisions contained in the respective parts of this
Schedule. If the member is found guilty of any of the acts or omissions
stated in any of the respective parts of this Schedule, he/she shall be
deemed to be guilty of professional and/or other misconduct.
PART I OF FIRST SCHEDULE
Professional misconduct in relation to Chartered
Accountants in practice
A Chartered Accountant in practice shall be deemed to be guilty of
professional misconduct, if he:-
Clause (1): allows any person to practice in his name as a chartered
accountant unless such person is also a chartered
accountant in practice and is in partnership with or
employed by him;
The above clause is intended to safeguard the public against
unqualified accountants practising under the cover of qualified
accountants. It ensures that the work of the accountant will be carried
out by a Chartered Accountant who may be his partner or his
employee and who would work under his control and supervision.
Clause (2): pays or allows or agrees to pay or allow, directly or
indirectly, any share, commission or brokerage in the
fees or profits of his professional business, to any person
other than a member of the Institute or a partner or a

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retired partner or the legal representative of a deceased
partner, or a member of any other professional body or
with such other persons having such qualifications as
may be prescribed, for the purpose of rendering such
professional services from time to time in or outside India.
Explanation: In this item “partner” includes a person
residing outside India with whom a chartered accountant
in practice has entered into partnership which is not in
contravention of item (4) of this part.;
It is in order for a member to share his fees or profits with another
member of the Institute and/or a firm of Chartered Accountants. A
practicing Member of the Institute can share fees or profits arising out
of his professional business with such members of other professional
bodies or with such other persons having such qualifications as may
be prescribed from time to time by the Council.
The Council has prescribed (Regulation 53-A of the Chartered
Accountants Regulations, 1988) the professional bodies which are as
under:-
(a) The Institute of Company Secretaries of India established
under the Companies Secretaries Act, 1980 (No. 56 of
1980).
(b) The Institute of Cost & Works Accountants of India
established under the Cost & Works Accountants Act, 1959
(No. 23 of 1959)
(c) Bar Council of India established under the Advocates Act,
1961 (No. 25 of 1961)
(d) The Indian Institute of Architects established under the
Architects Act, 1972 (No. 26 of 1972)
(e) The Institute of Actuaries of India established under the
Actuaries Act, 2006 (No. 35 of 2006)
The Institute came across certain Circulars/Orders issued by the
Registrars of various State Co-operative Societies wherein it has been
mentioned that certain amount of audit fee is payable to the concerned
State Government and the auditor has to deposit a percentage of his
audit fee in the state Treasury by a prescribed challan within a
prescribed time of the receipt of Audit fee. In recent past, the Council
considered the issue and while noting that the Government is asking
auditors to deposit such percentage of their audit fee for recovering the
administrative and other expenses incurred in the process, the Council

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decided that as such there is no bar in the Code of Ethics to accept
such assignment wherein a percentage of professional fee is deducted
by the Government to meet the administrative and other expenditure.
Goodwill
When there are two or more partners and one of them dies, the
widow of the deceased partner can continue to receive a share of the
profit of the firm. A legal representative, say widow of a deceased
partner, would be entitled to share the profits only where the
partnership agreement contains a provision that on the death of the
partner his widow or legal representative would be entitled to such
payment by way of sharing of fees or otherwise for some specified
period. There could not be any sharing of fees between the widow or
the legal representative of the proprietor of a single member firm and
the purchaser of the goodwill of the firm on the death of the Sole
proprietor of the firm. Payment of goodwill to the widow is permissible
in such cases only for the goodwill of the firm and to enable such
payments to be made in installments provided the agreement of the
sale of goodwill contains such a provision. These payments even if
they are spread over the specified period should not be linked up with
participation in the earnings of the firm. The widow of a partner when
the partnership agreement does not contain a provision entitling her to
share in profits, would not be entitled to such profits.
The Council has taken the view, in a case referred to it that it is not
permissible for the widow of a deceased member, whose professional
work consisted mainly of income-tax representation, to receive a
monthly lump-sum payment for a period of five years or a specified
percentage of income.
The Council of the Institute considered the issue whether the
goodwill of a proprietary firm of Chartered Accountant can be
sold/transferred to another eligible member of the Institute, after the
death of the proprietor concerned and came to the view that the same
is permissible. Accordingly, the Council passed the following resolution
with a view to mitigating the hardship generally faced by the families
after the death of such proprietors:
"RESOLVED THAT the sale/transfer of goodwill in the case of a
proprietary firm of Chartered Accountant to another eligible
member of the Institute shall be permitted
(a) in respect of cases where the death of the proprietor
concerned occurred on or after 30.8.1998.
Provided such a sale is completed/effected in all respects and the

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Institute’s permission to practice in deceased’s proprietary firm
name is sought within a year of the death of such proprietor
concerned. In respect of these cases, the name of the proprietary
firm concerned would be kept in abeyance (i.e. not removed on
receipt of information about the death of the proprietor as is being
done at present) only upto a period of one year from the death of
proprietor concerned as aforesaid:
(b) in respect of cases where the death of the proprietor
concerned occurred on or after 30.8.1998 and there existed a
dispute as to the legal heir of the deceased proprietor.
Provided the information as to the existence of the dispute is
received by the Institute within a year of the death of the proprietor
concerned. In respect of these cases, the name of proprietary firm
concerned shall be kept in abeyance till one year from the date of
settlement of dispute.
(c) in respect of cases where the death of the proprietor
concerned had occurred on or before 29th August, 1998
(irrespective of the time lag between the date of death of the
proprietor concerned and the date of sale/transfer of goodwill
completed/to be completed).
Provided such a sale/transfer is completed/effected and the
Institute’s permission to practice in the deceased’s proprietary firm
name is sought for by 28th August, 1999 and also further provided
that the firm name concerned is still available with the Institute."
In case of a partnership firm when all the partners die at the same
time, the above Council decision would also be applicable.
Procedure to be fulfilled to transfer the goodwill of Firm
of Chartered Accountants
Transfer of goodwill of the firms of Chartered Accountants is
permitted by the Institute subject to fulfillment of the following
procedures:-
1. An application in writing should be forwarded by a member,
holding Certificate of Practice, intimating his intention to
purchase goodwill.
2. The application should be made within 1 year from the date of
death of the member.
3. The application should be sent along with the following details:-
a. “Death Certificate” of the deceased member; and

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b. (i) A draft sale deed for sale/transfer of goodwill entered
into between the legal heir/s of the deceased and the
member intending to purchase goodwill.
(ii) The sale of goodwill deed must be very clear as to the
amount of consideration and payment thereof in one or
more installment(s) to be paid within a specified period.
The consideration should not be contingent upon future
profits.
4. Documents, such as, succession certificate or will, Legal Heir
Certificate or an affidavit sworn by all legal heir/s stating that
there is/are no other legal heir to the deceased member.
5. Legal heir, in this context, means spouse, child/children and
parents.
6. If the agreement is entered into by one of the legal heirs, ‘No
Objection’ from the other legal heirs, except those minor, are
also required to be submitted. In case of minor, ‘No Objection’
is to be obtained from the guardian.
7. The member intending to purchase the goodwill should give an
advertisement about his intention to purchase such goodwill,
and the advertisement should spell out that anyone having
objection thereto should send the objection directly to the
respective Regional Office/Decentralised office (address of
which shall be indicated in the advertisement). A copy of the
advertisement so published should be sent by the intending
purchaser to the concerned Regional Office/Decentralised
office.
8. Within 30 days of the receipt of the approval, for transfer of
goodwill, Form ‘18’ is required to be filed by the member
purchasing the goodwill.
In recent years it has become necessary for members to work in
association with engineering, legal or other professionals on specified
projects. In such cases, care should be taken by the member not to
extend his service beyond the normal sphere of professional practice
and any reports or recommendations should clearly delimit the
responsibilities assumed and services rendered.
Some of the decisions under this clause are given below:
In a decision of the Council, where a Chartered accountant entered
into an agreement whereby he had clearly agreed to pay the share
in profits of his professional business to the complainant and

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another person who were not the members of the Institute, it was
held that he was guilty of professional misconduct under the
clause.
(Vadilal V. Shah vs. J.B. Sanghavi - Page 239 of Vol.V of the
Disciplinary Cases -decided from 13th to 16th February, 1974).
A Chartered Accountant gave 50% of the audit fees received by
him to the complainant, who was not a Chartered Accountant,
under the nomenclature of office allowance and such an
arrangement continued for a number of years, it was held by the
Council that in substance the Chartered Accountant had shared his
profits and, therefore, was guilty of professional misconduct under
the clause. It is not the nomenclature to a transaction that is
material but it is the substance of the transaction which has to be
looked into.
(D.S. Sadri vs. B.M Pithawala - page 300 of Vol. V of the
Disciplinary cases - decided from 14th to 17th September, 1977)
Clause (3): accepts or agrees to accept any part of the profits of the
professional work of a person who is not a member of the
Institute;
Provided that nothing herein contained shall be
construed as prohibiting a member from entering into
profit sharing or other similar arrangements, including
receiving any share commission or brokerage in the fees,
with a member of such professional body or other person
having qualifications, as is referred to in item (2) of this
Part;
Just as a member cannot share his fees with a non-member, he is
also not permitted to receive and share the fees of others except for
sharing with Member of such professional body or other person having
such qualification as may be prescribed (Regulation 53A of The
Chartered Accountants Regulations, 1988) by the Council for the
purpose of Clause (2), (3) and (5) of Part I of First Schedule. Such a
restriction is necessary so that a Chartered Accountant who is often
required to engage or to recommend for engagement by his clients,
the services of the members of other professions, can not share the
fees received by other persons who are otherwise not permitted by the
Council in terms of provision of this clause.
Clause (4): enters into partnership, in or outside India, with any
person other than a chartered accountant in practice or
such other person who is a member of any other

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professional body having such qualifications as may be
prescribed, including a resident who but for his residence
abroad would be entitled to be registered as a member
under Clause (v) of sub-Section (1) of Section 4 or whose
qualifications are recognised by the Central Government
or the Council for the purpose of permitting such
partnerships.
The Council has prescribed (Regulation 53 A(3) and 53B of The
Chartered Accountants Regulations, 1988) for the persons qualified
and the professional bodies.
A Chartered Accountant in practice is not permitted to enter into
partnership with any person other than a Chartered Accountant in
practice or such other persons as may be prescribed by the Council
from time to time. However, partnership between members of the
Institute and members of foreign professional bodies are permissible
provided members of such bodies are eligible for the membership of
the Institute.
The Council had recognised membership of the following bodies
for the purpose of permitting partnerships by Indian Nationals abroad
as are referred to in that clause:
The Institute of Chartered Accountants of India;
The Institute of Chartered Accountants of Ceylon;
The Institute of Chartered Accountants in England and Wales:
The Institute of Chartered Accountants of Scotland;
The Institute of Chartered Accountants in Ireland.
The Council had passed the following resolution under Section
4(1)(v) of the Chartered Accountants Act, 1949:
“Resolved that the examinations and training in the United
Kingdom of the following four Institutes (formerly six) mentioned in
Rule 7 of the Auditor’s Certificates Rules, 1932, be recognised by
the Council under Section 4(1)(v) of the Act as being equivalent to
the examination and training prescribed for the members of this
Institute:
(a) The Institute of Chartered Accountants in England and Wales;
(b) The Institute of Chartered Accountants of Scotland;
(c) The Institute of Chartered Accountants in Ireland;
(d) The Society of Incorporated Accountants and Auditors, London.

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Provided that under the proviso to Section 4(1)(v), the following
further conditions be prescribed in the case of persons not
permanently residing in India:
(i) That such persons be required to reside in India to practise the
profession of Accountancy or to serve as an assistant in a
Chartered Accountant’s office in India; and
(ii) That such persons be not eligible for membership of the
Council or the Regional Councils or to the right of voting in
elections under the Chartered Accountants Act, 1949; and
(iii) That the membership of the Institute will cease if and when the
persons concerned ceases to reside or practise in India; and
(iv) That the Board of Trade in the United Kingdom accords the
right to the members of this Institute to practise the profession
of Accountancy in the United Kingdom in respect of the audit of
public Companies as defined in the (U.K.) Companies Act,
1948."
However, the Council of the Institute at its meeting held in
December, 1995 decided to withdraw the above resolution w.e.f.
December 8, 1995. In view of the above, persons qualified from any of
the aforementioned four Institutes in the United Kingdom are not
entitled to have their names entered in the Register of Members
maintained by the Institute effective from December 8, 1995. An
announcement published in February 1998 issue of the Journal, ‘The
Chartered Accountant’ at page 53 giving effect to the above decision of
the Council is appearing as Appendix ‘B’ to this book.
The Council of the Institute at its meeting held in January 1998 had
also decided that effective from December 8, 1997, no person who has
undergone training and has passed the examination conducted by any
of the following five institutions, organisations, etc. is entitled to have
his name entered in the Register of Members maintained by the
Institute of Chartered Accountants of India:
(i) The Institute of Chartered Accountants of Ceylon;
(ii) The Public Accountants and Auditor’s Board of South Africa;
(iii) The Institute of Chartered Accountants of Pakistan;
(iv) The Registered Accountants of Burma; and
(v) The Institute of Chartered Accountants in Australia.
An announcement published in May, 1998 issue of the Journal,
‘The Chartered Accountant’ from pages 93 to 96 giving effect to the

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above decision of the Council is appearing as Appendix ‘C’ to this
Book.
In other words, effective from December 8, 1997, no fresh
enrolment of persons with the qualifications of any of the above-
mentioned institutions, organisations, etc. is permissible.
Based on the above developments, partnership between members
of the Institute and members of above foreign professional bodies will
not be permissible from the above dates.
The Council while considering the judgement dated 10th July, 1990
of Allahabad High Court in the case of Iqbal Hamid vs. ICAI (W.P. No.
1823 of 1988) and another judgement dated 9th February, 1989 of
Bombay High Court in the case of Nalin S. Sualy vs. ICAI (W.P. No.
4906 of 1985) clarified that under this clause the prohibition on
entering into partnership with non-Chartered Accountants was
confined to the practice of the profession of Chartered Accountants.
The reference to aforesaid judgments is appearing under clause (11)
of this book.
The decision of the Council under this clause is given below:
Where a Chartered Accountant had engaged himself as a partner
in two business firms and Managing Director in two Companies
and was also holding Certificate of Practice without obtaining
permission of the Institute. Held that he was a guilty of professional
misconduct inter alia under Clauses (4) and (11).
(Harish Kumar in Re:– Pages 286 of Vol. VIII (2) of Disciplinary
Cases – Council’s decision dated 1st
to 3rd
August, 2001)
The Respondent was a Taxation Advisor of a group of Companies.
During search and seizure under Section 132 of The Income Tax
Act, 1961 of the group and also of the Chartered Accountant, the
Complainant found that the Respondent was colluding with this
group in evasion of tax. The Respondent had signed two sets of
financial statements of the same auditee, for the same financial
year. The two financial statements showed different figures of
contract receipts, net profits and balance sheet. He was grossly
negligent in the conduct of his professional duties. The
Respondent admitted that he was managing partner / partner in
two partnership firms where there were other partners who were
not Chartered Accountants. Held, the respondent is guilty under
Clause (4) of Part I of First Schedule and under Clauses (5), (6) &
(7) of Part I of Second Schedule.
(Assistant Director of Income Tax (Investment), Calicut v. P.

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Subramanian (25-CA(G-191)/2003) - to be published later under
Disciplinary Cases Volume X -2B–21(4). Council decision of 281st
Meeting held in October, 2008)
Clause (5): secures, either through the services of a person who is
not an employee of such chartered accountant or who is
not his partner or by means which are not open to a
chartered accountant, any professional business:
Provided that nothing herein contained shall be
construed as prohibiting any arrangement permitted in
terms of items (2), (3) and (4) of this Part;
“A man must stand erect, and not be kept erect by others” is a
dictum by Marcus Aurelius which though applicable for a man in every
walk of life is more so in the case of a professional. He must not seek
work through a person who is not his employee or partner or by means
which are not open to a chartered accountant. The work will follow him
due to the respect that he commands for his professional talent, and
skill and by the confidence he is able to inspire by his reputation. All
forms of canvassing on that account are regarded unethical and are
prohibited.
The decision of the Council under this clause is given below:
A Chartered Accountant wrote various letters to officers of different
Army Canteens giving details about him and his experience, his
partner & office and the norms for charging audit fees. He was held
guilty for violation of Clauses (5) & (6).
(Jethanand Sharda vs. Deepak Mehta – Council’s decision dated
1st to 4th July, 1998 – Page 61 of Volume VIII(2) of Disciplinary
Cases).
Clause (6): solicits clients or professional work either directly or
indirectly by circular, advertisement, personal
communication or interview or by any other means;
Provided that nothing herein contained shall be
construed as preventing or prohibiting—
(i) any chartered accountant from applying or
requesting for or inviting or securing professional
work from another chartered accountant in practice;
(ii) a member from responding to tenders or enquiries
issued by various users of professional services or
organisations from time to time and securing
professional work as a consequence;

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It is an elaboration of the principle propounded in the preceding
clause enjoining that for securing professional work the help of others
should not be sought. This clause further enjoins on a member not to
solicit professional work by means of advertisement, circular, personal
communication or interview or by any other means. The members
should not adopt any indirect methods to advertise their professional
practice with a view to gain publicity and thereby solicit clients or
professional work. Such a restraint must be practised so that members
may maintain their independence of judgement and may be able to
command the respect of their prospective clients.
In the early years of their professional career, members may find
this restraint inconvenient and irksome. A question may arise in their
minds as to how they would be able to find professional work if they
are not permitted to advertise or solicit work.
A little reflection would show that professional work cannot be
secured either by advertisement or by circulars or by solicitation. It can
only be obtained by a member gradually building confidence in his
ability and integrity. The service rendered by an accountant is of a
personal and intimate nature and its value can be appraised only by
personal contact and experience. A public advertisement is likely to
lead to an impression that the professional person is over-anxious to
win confidence which however will have the opposite effect. The
satisfaction of clients would be the best advertisement which would
lead to other clients. Unabashed advertisement would affect the public
esteem in which the profession is held and would act to the
disadvantage of its members. An advertisement is not a key to
success in the profession. It is the quality of service which attracts and
retains the clients.
Some forms of soliciting work which the Council has prohibited are
discussed below:-
(a) Advertisement and Notes in the press
Members should not advertise for soliciting work or advertise in a
manner which could be interpreted as soliciting or offering to undertake
professional work. They are also not permitted to use the less open
method of circulating letters to a small field of possible clients.
Personal canvassing or canvassing for clients of a previous employer
through the help of the employees are also not permitted.
The exceptions to the above rule are-
(i) A member may request another Chartered Accountant in
practice for professional work

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(ii) A member may advertise changes in partnerships or
dissolution of a firm, or of any change in the address of
practice and telephone numbers. Such announcements
should be limited to a bare statement of facts and
consideration given to the appropriateness of the area of
distribution of the newspaper or magazine and number of
insertions.
(iii) A member is permitted to issue a classified advertisement in
the Journal/Newsletter of the Institute intended to give
information for sharing professional work on assignment
basis or for seeking professional work on partnership basis
or salaried employment in the field of accounting profession
provided it only contains the accountant’s name, address,
telephone, fax number and E-mail address.
(b) Application for empanelment for allotment of audit
and other professional work
The government departments, government Companies/
corporations, courts, co-operative societies and banks and other
similar institutions prepare panels of Chartered Accountants for
allotment of audit and other professional work. Where the existence of
such a panel is within the knowledge of a member, he is free to write to
the concerned organization with a request to place his name on the
panel. However, it would not be proper for the Chartered Accountant to
make roving enquiries by applying to any such organization for having
his name included in any such panel.
It is permissible to quote fees on enquiries being received or
respond to tenders from the organizations requiring professional
services, which maintain such panel.
(c) Publication of Name or Firm Name by Chartered
Accountants in the Telephone or other Directories
published by Telephone Authorities or Private Bodies
The Council has held that it would not be proper for a Chartered
Accountant to have entries made in a Telephone Directory either by
making a special request or by means of an additional payment. The
Council has also considered the question of permitting entries in
respect of Chartered Accountants and their firms under specified
groups in telephone/trade directories brought out by government and
non-government agencies. It has decided to permit such entries

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subject to the following restrictions:-
1. The entry should appear in the section/category of ‘Chartered
Accountants’.
2. The member/firm should belong to the town/city in respect of
which the directory is being published.
3. The entry should be in normal type of letters. Entry in bolder
type or abnormal type of letters or in a box is not permissible.
4. The order of the entries should be alphabetical and logical.
5. The entry should not appear in a manner giving the impression
of publicity/advertisement. Entry should not be given in a
manner which gives prominence to it as compared to other
entries.
6. The payment, if any, for the entry should not be unreasonable.
7. The entries should not be restricted and should be open to all
the Chartered Accountants/firms of Chartered Accountants in
the particular city/town in respect whereof the directory is
published.
8. Subject to the above conditions, the members can also include
their names in trade directories which are published and/or
otherwise available such as electronic media e.g. internet,
telephone services like “Ask Me Services” etc.
(d) Responding to Tenders, Advertisements and
Circulars
It is not prohibited to the members to respond to tenders and
requests made by users of professional work.
(e) Publication of Books or Articles
A member is not permitted to indicate in a book or an article,
published by him, the association with any firm of Chartered
Accountants.
(f) Issue of greeting cards or invitations
The Council does not approve of the issue of greeting cards or
personal invitations by members indicating their professional
designation, status and qualifications etc. However, the Council is of
the view that the designation “Chartered Accountant” as well as the
name of the firm may be used in greeting cards, invitations for
marriages and religious ceremonies and any invitations for opening or

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inauguration of office of the members, change in office premises and
change in telephone numbers, provided that such greeting cards or
invitations etc. are sent only to clients, relatives and friends of the
members concerned.
(g) Soliciting professional work by making roving
enquiries
It is not permissible for a member to address letters or circulars to
persons who are likely to require services of a Chartered Accountant
since it would tantamount to advertisement.
(h) Seeking work from professional colleagues
The issue of an advertisement or a circular by a Chartered
Accountant, seeking work from professional colleagues on any basis
whatsoever except as provided above would be in violation of this
Clause.
(i) Scope of representation which an auditor is entitled
to make under Section 225(3) of the Companies Act,
1956
The right to make representation does not mean that an auditor
has any prescriptive right or a lien to an audit. The wording of his
representation should be such that, apart from the opportunity not
being abused to secure needless publicity, it does not tantamount
directly or indirectly to canvassing or soliciting for his continuance as
an auditor. The letter should merely set out in a dignified manner how
he has been acting independently and conscientiously through the
term of office and may, in addition, indicate if he so chooses, his
willingness to continue as auditor if reappointed by the shareholders.
(j) Acceptance of original professional work by a
member emanating from the client introduced to him by
another member
The Council has decided that a member should not accept the
original professional work emanating from a client introduced to him by
another member. If any professional work of such client comes to him
directly, it should be his duty to ask the client that he should come
through the other member dealing generally with his original work.
(k) Giving public interviews
While giving any interview or otherwise furnishing details about

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themselves or their firms in public interviews or to the press or at any
forum, the members should ensure that, it should not result in publicity.
Due care should be taken to ensure that such interviews or details
about the members or their firms are not given in a manner highlighting
their professional attainments.
(l) Members and/or firms who publish advertisements
under Box numbers
Members/Firms are prohibited from inserting advertisements for
soliciting clients or professional work under box numbers in the
newspapers. This practice is in violation of this clause.
(m) Website
The Council at its 212th
meeting held in January, 2001 approved
the detailed guidelines for posting the particulars on Website by
Chartered Accountant(s) in practice and firm(s) of Chartered
Accountants in practice. Subsequently, the Council at its 235th
meeting
held in July, 2003 amended sub-paras (8) & (20) of the said guidelines.
Thereafter, the Council at its 242nd
meeting held in April, 2004 again
revised the said guidelines. The amended guidelines issued by the
Council are as under:
(1) The Chartered Accountants and/or Chartered Accountants’
Firms would be free to create their own Website subject to
the overall guidelines laid down by the Council hereunder.
The actual format of the Website is not being prescribed nor
any standard format of the Website is being given to provide
independence to the Members. There is no restriction on the
colours which may be used in the Website.
(2) Individual Members would also be permitted to have their
Webpages in their trade name or individual name.
(3) The Chartered Accountants and/or Chartered Accountants’
Firms would ensure that their Websites are run on a “pull”
model and not a “push” model of the technology to ensure
that any person who wishes to locate the Chartered
Accountants or Chartered Accountants’ firms would only
have access to the information and the information should
be provided only on the basis of specific “pull” request.
(4) The Chartered Accountants and/or Chartered Accountants’
Firms should ensure that none of the information contained
in the Website be circulated on their own or through E-mail

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or by any other mode or technique except on a specific “pull”
request.
(5) The Chartered Accountants would also not issue any
circular or any other advertisement or any other material of
any kind whatsoever by virtue of which they solicit people to
visit their Website. The Chartered Accountants would,
however, be permitted to mention their Website address on
their professional stationery.
(6) The following information may be allowed to be displayed on
the Firms/Members’ Websites:
(i) Member/Trade/Firm name.
(ii) Year of establishment.
(iii) Member/Firm’s Address (both Head Office and
Branches)
Tel. No(s)
Fax No(s)
E-mail ID(s)
(iv) Nature of services rendered (to be displayable only on
specific “pull” request)
(iv) Partners
Partners
Name
Year of
Quali-
fication
Other
Quali-
fication(s)
Tel..
Off.-Direct
Res.
Mobile
E-mail
address
Area of Experience (to
be displayable only on
specific “pull” request)
(vi) Details of Employees -
Professional Others Name Designation Area of experience (to
be displayable only on
specific “pull” request)
(vii) Job vacancies for the Chartered Accountant/firm of
Chartered Accountants (including articleship).
(viii) No. of articled clerks. (to be displayable only on specific
“pull” request).
(ix) Nature of assignments handled (to be displayable only

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on specific “pull” request). Names of clients and fee
charged cannot be given.
(7) Since Chartered Accountants in practice/firms of Chartered
Accountants are not permitted to use logo with effect from
1st July, 1998, they cannot use logo on Website also.
(8) Display of Passport size photograph is permitted.
(9) The members may include articles, professional information,
professional updation and other matters of larger importance
or of professional interest.
(10) The bulletin boards can be provided.
(11) The chat rooms can be provided which permit chatting
amongst members of the ICAI and between Firms and its
clients. The confidentiality protocol would have to be
observed.
(12) The members/firms can provide on line advice to their
clients who specifically request for the advice whether free
of charge or on payment.
(13) The listing on suitable search engine should be permitted.
However, the field of search should be restricted only to the
field of “Chartered Accountants” or “CA” or “Indian CA”,
“Indian CPA”, “Indian Chartered Accountant” or any
permutation or combination related thereto. The Websites
would be subjected to the guidelines contained herein and
normally would not be vetted by the Institute of Chartered
Accountants of India (ICAI). ICAI at its sole discretion may
vet any of the Websites created by its members or individual
Chartered Accountant or firms of Chartered Accountants
and would have powers to direct deletion of certain portions
and/or issue specific directions. In addition, necessary
action can be taken in accordance with the Chartered
Accountants Act, 1949 and the Regulations framed
thereunder, in case there is any violation of the above
guidelines.
(14) The details in the Website should be so designed that it
does not amount to soliciting client or professional work. In
case any content or technical feature of Website is against
the professional Code of Conduct and Ethics as well as the
restrictions contained in the schedules to the Chartered
Accountants Act, 1949 or against the guidelines or
directions issued by ICAI from time to time, appropriate

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action will be initiated by the ICAI in terms of its disciplinary
mechanism either suo-motto or on complaint as provided
under the Chartered Accountants Act, 1949.
(15) The Website should ensure adequate secrecy of the matters
of the clients handled through Website.
(16) A number of Chartered Accountants Societies or other
bodies are creating data-bases of Chartered Accountants or
Chartered Accountants’ Firms and are offering listing to
Chartered Accountants. Such listing would be permitted with
or without payment. In case a Chartered Accountant or
Chartered Accountants’ Firm is a member of a professional
body or association or Chamber of Commerce and they
offer listing to the members or firm, the same would be
permitted.
(17) The Institute of Chartered Accountants of India will regularly
inform the aforesaid guidelines to the members and the
Chartered Accountants’ Firms to ensure the strict
compliance of the guidelines. The guidelines may be revised
from time to time.
(18) No Advertisement in the nature of banner or any other
nature will be permitted on the Website.
(19) The Website should be befitting the profession of Chartered
Accountants and should not contain any information or
material which is unbecoming of a Chartered Accountant.
(20) The Website may provide a link to the Website of ICAI, its
Regional Councils and Branches and also the Website of
Govt./Govt. Departments/Regulatory authorities/other
Professional Bodies, such as, American Institute of Certified
Public Accountants (AICPA), the Institute of Chartered
Accountants of England & Wales (ICAEW) and The
Canadian Institute of Chartered Accountants (CICA).
(21) The address of the Website can be different from the name
of the firm. But it should not amount to soliciting clients or
professional work or advertisement of professional
attainments or services. The Website address should be as
near as possible to the individual name/trade name, firm
name of the Chartered Accountant in practice or firm of
Chartered Accountants in practice. The Ethical Standards
Board (ESB) of ICAI will decide in case there is any
difficulty.

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(22) The Website should mention the date upto which it is
updated and the information should not be at material
variance from the information as per the ICAI’s records.
The website address of the member be obtained on annual basis
in the annual form required to be filed by the member while paying fee
and the same be taken as entry on record & the website address of the
member be provided to members as part of the membership record. If
the member chose not to give his website address, it did not prevent
the Institute to take suitable action against him in case his non-
compliance with the guidelines.
A number of non-Chartered Accountants’ firms, corporates
including banks, finance Companies and newspapers have set up their
own Websites providing advisory services on taxation and other areas
where Chartered Accountants are rendering professional service.
Some of such Websites may request Chartered Accountants or
Chartered Accountants’ firms to provide consultation and advice
through their Websites. This would be permitted subject to the
condition that on the Website, contact address of the Chartered
Accountant concerned is not provided nor such Website will contain
any material which advertises professional achievements or status of
such Chartered Accountant except making a statement that they are
Chartered Accountants. The name of Chartered Accountants’ firm with
suffix “Chartered Accountants” would not be permitted.
Some of the decisions of the Council/High Courts on this clause
are given below:
Solicitation
Where a Chartered Accountant sent a printed card and circular
letters soliciting work. - Held, he was guilty under the clause.
(M.J. Gadre vs. W.G. Ambekar - Page 43 of Vol. I of the
Disciplinary Cases and pages 87-89 of August, 1952 issue of the
Institute’s journal-judgement delivered on 4th April, 1952 )
Where a Chartered Accountant firm issued a letter of authority in
favour of two other Chartered Accountants to accept and carry out
audits of Co-operative Societies on its behalf and they (the two
Chartered Accountants) issued circulars of which the firm was not
aware. Held, that the firm was not guilty of professional
misconduct.
(V.B. Kirtane in Re: - Page 423 of Vol.III of the Disciplinary Cases
and page 465 of January, 1958 issue of the Institute’s journal -
Judgement delivered on 11th November, 1957)

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But the person, in whose favour the letter of authority was given in
the above case, was held guilty.
(M.R. Walke in Re: - Page 441 of Vol.III of the Disciplinary Cases
and pages 469-470 of January, 1958 issue of the Institute’s
journal-Judgement delivered on 11th November, 1957)
Where a Chartered Accountant sent an application to the
Chairman of a Co-operative Society offering himself for
appointment as an auditor. - Held that the infringement was a
serious breach of professional ethics.
(G.K. Joglekar in. Re: and D.G. Jawalker in Re:- Pages 429 and
433 of Vol. III of the Disciplinary Cases and pages 466-469 of
January, 1958 issue of the Institute’s Journal-Judgement delivered
on 11th November, 1957)
A letter of request was sent for being appointed as auditor. Held he
was guilty.
(B.K. Swain in Re: - Page 134 of Vol. IV of the Disciplinary Cases
and pages 356-358 of March, 1960 issue of Institute’s Journal -
Judgement delivered on 12th February, 1960)
A Chartered Accountant sent a printed circular to a person
unknown to him offering his services in profit planning and profit
improvement programmes The circular conveyed the idea that it
was meant for strangers only. Held, the Chartered Accountant was
guilty of professional misconduct under the clause as he used the
circulars to solicit clients and professional work.
(B.S.N Bhushan in Re: - Page 989 of Vol.IV of the Disciplinary
cases decided on 11th
& 12th
January, 1965)
A Chartered Accountant wrote several letters to the Assistant
Registrar of Co-operative Societies, Government of West Bengal
stating that though his firm was on the panel of auditors, no audit
work was allotted to the firm and requested them to look into the
matter. Held the Chartered Accountant was guilty of professional
misconduct under the clause.
(D.C. Pal in Re: - Page 1001 of Vol. IV of the Disciplinary Cases -
decided on 12th, 13th and 14th September, 1966)
A Chartered Accountant wrote several letters to Assistant
Registrars/Registrars of Co-operative Societies, Government of
West Bengal requesting for allotment of audit work and to enroll his

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name on panel of auditors. - Held he was guilty of professional
misconduct under the clause. The activities of the Chartered
Accountant went much beyond the instructions of the Council to
the effect that roving enquiries should not be made with the
Government Department for empanelling the name unless it had
been ascertained in advance that specific panel was being
maintained. It was also held that an auditor of co-operative
societies under a licence granted by co-operative department was
not its employee and, therefore, he could not solicit work.
(Chief Auditor of Co-operative Societies, West Bengal vs. B.B.
Mukherjee - Page 1007 of Vol. IV of the Disciplinary Cases -
decided on 16th September, 1967)
A Chartered Accountant, inspite of the previous reprimand, sent
letters to Registrar, Co-operative Societies, Calcutta, stating that
no allotment of audit was made to him and requested to take action
immediately and oblige. Held he was guilty of professional
misconduct under the clause.
(D.N. Das Gupta, Chief Auditor of Co-operative Societies, West
Bengal vs. B.B. Mukherjee - Page 1028 of Vol. IV of the
Disciplinary Cases-decided on 15th and 16th September, 1969)
A Chartered Accountant approached the Principal of a Secondary
school through a third person known to the Principal for his
appointment as auditor of that school. Further, the Chartered
Accountant misrepresented to the previous Auditor that he had
been offered appointment as Auditor of the School and enquired
whether he had any objection to his accepting the same though it
was a fact that the appointment of Chartered Accountant was not
made.- Held, the Chartered Accountant was guilty of professional
misconduct under the clause. It was further held that writing letter
by the Chartered Accountant to the previous auditor offering his
services to audit the accounts of School was not wrong as it was
an offer to a professional colleague and not to a prospective client.
(M.L. Agarwal in Re: - Page 1033 of Vol. IV of the Disciplinary
Cases-decided on 16th and 17th February, 1973)
An assistant of the Chartered Accountant under his authorisation
wrote letter to a stranger association requesting for appointment as
auditor. Held the Chartered Accountant was guilty of professional
misconduct under the Clause.
(S.N. Mukherji & Co. vs. P.K. Ghosh - Page 273 of Vol.V of the
Disciplinary Cases-decided on 20th & 21st February, 1975)

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A member was found guilty of professional misconduct under
Clauses (6) and (7) of Part I of the First Schedule for having issued
circular letter regarding change of address of his firm to persons
who were not in professional relationship with him and for having
written to the shareholders thanking them for appointing him as
auditor. He was reprimanded by the Council under Section 21(4).
On an appeal made by him against the order of the Council, the
High Court confirmed the order passed by the Council having
regard to the ethical requirements about publicity by the members
of the Institute as laid down in the Code of Conduct.
(K.K. Mehra vs. M.K. Kaul - Page 80 of Vol. V of the Disciplinary
Cases and pages 189-191 of February, 1976 issue of the
Institute’s Journal - Judgement delivered on 23rd October, 1975)
An advertisement was published in a newspaper containing the
member’s photograph wherein he was congratulated on the
occasion of the opening ceremony of his office. He was found
guilty by the Council and later, by High Court - of violating this
Clause (soliciting work by advertisement). The following
observations of the High Court may be relevant:
(a) The advertisement which had been put in by the member is
a noticeable one and the profession of Chartered
accountancy should maintain high standards of integrity,
professional ethics and efficiency.
(b) If soliciting of work is allowed the independence and
forthrightness of a Chartered Accountant in the discharge of
duties cannot be maintained and therefore some discipline
must be maintained by the profession.
(G.P. Agrawal in Re: - Page 14 of Vol. VI(2) of Disciplinary Cases -
Judgement dated 30.4.1982).
A member had published an advertisement in a newspaper inviting
professional work for accounts writing, Income-tax matters etc. It
was held that the insertion of an advertisement of such a nature
amounted to soliciting professional work by advertisement and the
member was found guilty in terms of this Clause.
(Vallabh C. Shah in Re: - Page 25 of Vol. VI(2) of Disciplinary
Cases - Decided from 20th to 23rd April, 1983)
A member had issued a circular letter highlighting his attainments
and offering his professional services. He was found guilty in terms
of this Clause.

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(R.K. Chawla in Re: - Page 61 of Vol. VI(2) of Disciplinary Cases -
Decided on 29th, 30th and 31st December, 1987)
A member who got an advertisement published in a newspaper
offering his services in matters of Accounts, Income-tax, Labour
Laws, law matters and Management Services was found guilty in
terms of this clause as also under Clause (7).
(Anil K. Garg in Re: - Page 70 of Vol. VI(2) of Disciplinary Cases -
Decided on 29th, 30th and 31st December, 1987)
A member had an advertisement published in a newspaper
regarding inauguration of his professional office. It was held that
having regard to:
(i) the nature of the advertisement
(ii) the function organised on that occasion
(iii) the persons invited
(iv) the medium used
(v) the names of various concerns which had conveyed their
good wishes
(vi) the advertisement having been released by the Respondent
himself, and he had solicited professional work by
advertisement, he was found guilty in terms of this clause.
(Shashindra S. Ostwal in Re: - Page 81 of Vol. VI(2) of Disciplinary
Cases - Decided on 11th, 12th and 13th February, 1988)
A member issued a printed circular letter to a Company
highlighting the details of his professional attainments and services
which he could render in various fields offering his professional
services on a contractual basis. He was found guilty in terms of this
clause.
(Parimal Majumder in Re: - Page 333 of Vol. VI(2) of Disciplinary
Cases - Decided on 11th,12th,13th and 14th September, 1989)
A member gave an advertisement in a Newspaper seeking works
from other professionals. He was found guilty in terms of this
clause.
(B.K. Sharma in Re: - Page 340 of Vol. VI(2) of Disciplinary Cases
- Decided on 11th, 12th, 13th and 14th September, 1989)
A member wrote a letter to a Company in standard format
highlighting his expertise in Sales tax matters and had requested
for a draft of Rs. 200/- if his knowledge of the Sales tax matters

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has been found worthwhile. The member was found guilty in terms
of this Clause.
(K.A. Gupta in Re: - Page 371 of Vol. VI(2) of Disciplinary Cases -
Decided on 18th, 19th and 20th December, 1989)
Where a Chartered Accountant had sent a letter to another firm of
Chartered Accountants, in which he had introduced his firm as
pioneer in liasoning with Central Government Ministries and its
allied Departments for getting various Government clearances for
which he had claimed to have expertise and had given a list of his
existing clients and details of his staff etc. Held that he was guilty
under the clause.
(Bijoy Kumar in Re: - Page 69 of Vol. VII(2) of the Disciplinary
Cases – Council’s decision dated 16th September, 1991)
Where a Chartered Accountant had visited personally the clients
for securing the appointment as auditors of the Institutions. Held
that he was guilty under clause (6) of Part I of First Schedule.
(J.S. Bhati vs. M.L. Aggarwal - Page 87 of Vol.VII(2) of Disciplinary
Cases – Council’s decision dated 4th & 5th December, 1975 -
Judgement dated 30th October, 1991)
Where a Chartered Accountant had addressed an undated but
signed letter to a Bank requesting for empanelment of his firm as
auditor alongwith the particulars of his firm showing the past
experience and other details of the firm; and a Member of
Parliament had also sent a letter to the Bank recommending the
name of the said Chartered Accountants firm for immediate
empanelling for Internal Audit/Inspection Audit/Management Audit,
Expenditure Audit. Held that the member was guilty under clause
(6) of Part I of the First Schedule.
(Naresh C. Agarwal in Re: - Page 160 of Vol.VII(2) of Disciplinary
Cases – Council’s decision dated 16th to 18th July, 1992)
Where a Chartered Accountant had published an advertisement in
two newspapers mentioning that he was a Senior Chartered
Accountant having administrative ability and was available on
retainership for setting up Accounts Department/Internal
Auditing/Finance Management. Held that he was guilty under the
clause.
(D.M. Kothari in Re: - Page 253 of Vol.VII(2) of Disciplinary Cases
– Council’s decision dated 5th to 7th August, 1993)
Where a Chartered Accountant had issued undated and unsigned

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cyclostyled inland letter containing the name & address of his firm
and also bearing his firms rubber stamp with address on its reverse
in the space earmarked for senders name and address seeking
audit assignment from a Cooperative Society. Held that the
member was guilty under the clause.
(V.M.Chhallani in Re: - Page 262 of Vol.VII(2) of Disciplinary
Cases – Council’s decision dated 5th to 7th August, 1993)
Where a Chartered Accountant had sent a letter on the letterhead
of his firm to a non-member introducing himself as a Chartered
Accountant giving details of services rendered by him and the
schedule of his fees for rendering various kinds of services. Held
that he was guilty under the clause.
(V.K. Goel in Re: - Page 340 of Vol.VII(2) of Disciplinary Cases –
Council’s decision dated 5th to 7th December, 1994)
Where a Chartered Accountant had written a letter to a Co-
operative Society wherein he had mentioned that he had been
authorised by the Registrar of Societies to conduct the statutory
audit of the Societies and requested it to contact him. Held that it
tantamounts to solicitation of the audit and he had violated the
provisions of the clause.
(M.V. Lonkar in Re: - Page 410 of Vol.VII(2) of Disciplinary Cases
– Council’s decision dated 23rd & 24th February, 1996)
Where a Chartered Accountant had solicited clients and
professional work by personal communication as also by enclosing
a circular with his communication, utilized the influence of a
Minister as well as created political pressure to secure professional
work, etc. Held he was guilty under the clause.
(K. Bhattacharjee vs. B.K. Chakraborty - Page 462 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 11th to 13th
February, 1988 and Judgement dated 10th June, 1996 dismissing
appeal filed by the Respondent)
A Chartered Accountant had issued a letter to a shareholder of a
Company informing him about his eligibility for appointment as
statutory auditor of any Company and the said shareholder had
forwarded the aforesaid letter of the Chartered Accountant to the
Company proposing the Chartered Accountant’s appointment as
auditor, as a special notice under Section 225 read with Section
224(2)(d) of the Companies Act, 1956. The Company had informed
the shareholder that it could not take any action on his letter as the
Chartered Accountant’s certificate in terms of Section 224(1) of the

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Companies Act had not been received. The Chartered Accountant
had directly written to the Complainant Company certifying that the
appointment, if made, would be in accordance with the limits
specified in Section 224(1B) of the Companies Act. Besides the
above Company, other 9 Companies had also received such
notices under Section 225 of the Companies Act. It was held by the
Council that he was guilty under Clause (6). The Council decided
that his name be removed from the Register of Members for a
period of one month. He appealed against the decision of the
Council to the High Court. The High Court allowed the appeal in
part. While upholding the finding of the Council that he was guilty
of committing professional misconduct, the Court modified the
punishment awarded to him by substituting the same with a
censure that he shall be careful in future in observing the high
tradition and best standards of the noble profession of Chartered
Accountants.
(V.K. Goenka, VC & MD, Warren Tea Ltd. vs. P.K. Lodha - Page
588 of Vol. VII(2) of Disciplinary Cases – Council’s decision dated
6th to 8th December,1995 and judgement of the High Court dated
29th August, 1996)
A Chartered Accountant had addressed a letter to the Managing
Director of a Company seeking appointment as its internal auditor.
He had stated that he was of the bona fide belief that the Company
might be maintaining a panel of Chartered Accountants for
assigning the internal audit work. He was held guilty for violation of
Clause (6).
(P.G. Biswas in Re:- Page 790 of Vol. VII(2) of Disciplinary Cases
– Council’s decision dated 8th to 10th December, 1997).
A Chartered Accountant wrote various letters to officers of different
Army Canteens giving details about him and his experience, his
partner & office and the norms for charging audit fees. He was held
guilty for violation of Clauses (5) & (6).
(Jethanand Sharda vs. Deepak Mehta – Council’s decision dated
1st to 4th July, 1998 – Page 61 of Vol. VIII(2) of Disciplinary
Cases).
A Chartered Accountant sent New Year Greeting Cards bearing his
name, qualification, the name and address of his firm and also
containing the following:
“List of super hit books written by Suresh D. Chauhan. Guide to
win girls – Income-Tax raid. Contact for any type of bank for

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institutional loans or deposits”. Held that the Chartered Accountant
contravened Clause (6) & (7) of Part-I of the First Schedule to the
Chartered Accountants Act, 1949 in having solicited assignment
relating to any type of bank or institutional loans or deposits.
(S.D. Chauhan in Re. – Page 226 of Vol. VIII (2) of Disciplinary
Cases – Council’s decision dated 1st
- 3rd
August, 2001)
The Souvenir published on the occasion of “Navaratrotsav” by
‘Parel Paschim Vibhag Va Tata Mills Welfare Centre 1991’
contained an advertisement with a caption “With best compliments
from Abhiraj R. Ranawat B.Com., A.C.A. (Chartered Accountant)
Share and Stock Sub-Broker. The said advertisement also
contained office timing 8 A.M. to 10 A.M., telephone nos. of market
and residence and addresses of office and market. Arising out of
the above, the Respondent was, inter alia, held guilty in having
published his designation as Chartered Accountant with telephone
nos., office address etc. in the Souvenir for soliciting professional
work directly or indirectly in violation to Clause (6).
(A.R. Ranawat in Re:- Page 414 of Vol. VIII (2) of Disciplinary
Cases – Council’s decision dated 26th
to 28th
August, 2001)
A Chartered Accountant had issued the following advertisements in
“Hindustan Times” –
“Experienced C.A. having Posh Office with telephones, Computer,
Telex, Car, Qualified Staff available for taxation, Company Law,
Accounts, Internal control, Financing from banks and institutions,
contact phone ……………….” By issuing the above advertisement,
the Respondent has tried to (i) Solicit clients of professional work
either directly or indirectly, (ii) Advertised his professional
attainments of services in violation of Clause (6) & (7) Part I of First
Schedule to the Chartered Accountants Act, 1949. Held that he
was guilty of professional misconduct under the said Clauses.
(Rajeev Sharma in Re:- Pages 454 of Volume VIII (2) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
August,
2001)
A Chartered Accountant issued circular/letter to Chartered
Accountants/firms of Chartered Accountants outside Kanpur. In the
said circular, while offering his services, the details regarding
expenses to be incurred and fees to be charged by him for
rendering professional services etc. were also mentioned. Held
that he was guilty of professional misconduct under the Clause.
(Sanjeev Srivastava in Re: – Page 249 Vol. IX-2A-21(4) of

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Disciplinary Cases – Council’s decision dated 11th
to 13th
November 2002)
Where a Chartered Accountant approached the Chairman of an
Institution and offered to accept the audit of said Institution. Held
that he was inter alia guilty of professional misconduct within the
meaning of Clause (6) of Part I of the First Schedule of the
Chartered Accountants Act, 1949.
(L.K. Kathare vs. G. Sreenivasa – to be published in Volume of
Disciplinary Cases – Page 784 Vol. X-2A-21(4) of Disciplinary
Cases – Council’s decision dated 16th
to 18th
September 2003)
The Respondent issued circular offer to a Govt. Agency, antedated
in the nature of offer-cum-appointment seeking letter/circular
tantamounting to enquiries, advertisement and soliciting the work.
It is noteworthy that the above letter of the Respondent did not
indicate reference of any enquiry by the Agency in response to
which the said offer was made. The Respondent had used his
acquaintance with the then Chairman/D.M. of the Agency for
fetching the assignment, ignoring the recommendations of original
committee and influencing the subordinate officers for changing the
recommendation in favour of the Respondent. The said act of the
Respondent amounted to solicitation of work. Held that the
Chartered Accountant is guilty of professional misconduct within
the meaning of Clause (6) of Part I of First Schedule to the
Chartered Accountants Act, 1949.
(A.K. Gupta of M/s G.P. Jaiswal & Co. vs. Habibullah – Page 110
Vol.X-2B-21(4) of Disciplinary Cases – to be published in Volume
of Disciplinary Cases – Council’s decision dated 15th
to 17th
April,
2004)
Clause (7): advertises his professional attainments or services, or
uses any designation or expressions other than chartered
accountant on professional documents, visiting cards,
letter heads or sign boards, unless it be a degree of a
University established by law in India or recognised by
the Central Government or a title indicating membership
of the Institute of Chartered Accountants of India or of
any other institution that has been recognised by the
Central Government or may be recognised by the
Council;
Provided that a member in practice may advertise
through a write up, setting out the services provided by

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him or his firm and particulars of his firm subject to such
guidelines as may be issued by the Council;
This clause prohibits advertising of professional attainments or
services of a member. However, the services can be advertised in a
restricted way through a write up subject to the guidelines of the
council issued from time to time. Refer chapter 6 of the book. It also
restrains a member from using any designation or expression other
than that of a Chartered Accountant in documents through which the
professional attainments of the member would come to the notice of
the public.
It is improper for a Chartered Accountant to state on his
professional documents that he is an Income-tax Consultant, Cost
Accountant, Company Secretary, Cost Consultant or a Management
Consultant.
While noting that it had already allowed its members to appear
before the various authorities including Company Law Board, Income
Tax Appellate Tribunal, Sales Tax Tribunal where the law has
permitted the same, so far as the designation “Corporate Lawyer” is
concerned, the Council was of the view that as per the existing
provisions of law, a Chartered Accountant in practice is not entitled to
use the designation “Corporate Lawyer”.
The members are not permitted to use the initials ‘CPA’ (standing
for Certified Public Accountant) on their visiting cards.
The date of setting up the practice by a member or the date of
establishment of the firm on the letter heads and other professional
documents etc. should not be mentioned. However in the Website, the
year of establishment can be given on the specific “pull” request.
A member must not use the designation such as ‘Member of
Parliament’, ‘Municipal Councilor’ nor any other functionary in addition
to that of Chartered Accountant.
Members of the Institute in practice who are otherwise eligible may
practise as advocates subject to the permission of the Bar Council but
in such case, they should not use designation ‘Chartered Accountant’
in respect of the matters involving the practice as an advocate. In
respect of other matters they should use the designation ‘Chartered
Accountant’ but they should not use the designation ‘Chartered
Accountant’ and ‘Advocate’ simultaneously.
Members of the Institute in practice who are otherwise eligible may
also practice as Company Secretaries and/or Cost Accountants. Such

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members shall, however, not use designation/s of the aforesaid
Institute/s simultaneously with the designation “Chartered Accountant”.
It is clarified that in the event of the permission being granted to a
member in practice to also hold COP of sister Institute(s)/Bar Council,
such a member be treated as a member in full-time practice.
It is not proper for a Chartered Accountant to use the designation
‘Chartered Accountant’ except on professional documents, visiting
cards, letter heads or sign boards and under the circumstances
clarified under para (f) of Clause (6).
The name, description and address of member (or firm) may
appear in any directory or list of members of a particular body in which
the names are listed alphabetically. For a specialised directory or a
publication such as a “Who’s Who” (including those compiled on purely
local basis), a member should use his discretion in supplying
information, bearing in mind the nature and purpose of the
publications. In addition to his name, description and address and
those of his firm, a member may give where appropriate, directorships
held and reasonable personal details and may state his outside
interests. He should not, however, give the names of any of his clients.
The details of the services offered by his firm can be given through a
write-up subject to guidelines of the Council issued from time to time.
Refer Council Guidelines Chapter 3 of the book.
Detailed directions of the Council in regard to publication of Name
or Firm Name by Chartered Accountants in the Telephone or other
Directories published by Telephone Authorities or Private Bodies are
published under Clause (6).
There should be no objection to the publication of photographs and
brief particulars of members in magazines provided no payment is
made for such publication and there is no advertisement of
professional attainments.
A special exemption has been made as regards publication of the
name and address of a member or that of his firm, with the description
Chartered Accountant(s), in an advertisement appearing in the press in
the following circumstances, provided that the advertisement is not
displayed more prominently than is usual for such advertisements or
the name of the member or that of his firm with the designation
Chartered Accountant(s) appears in type not bolder than the
substance of the advertisement:-
(a) Advertisement for recruiting staff in the member’s own
office.

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(b) Advertisement inserted on behalf of clients requiring staff or
wishing to acquire or dispose of business or property.
(c) Advertisement for the sale of a business or property by a
member acting in a professional capacity as trustee,
liquidator or receiver.
When advertising for staff, it is desirable that members should
avoid the expression such as “a well-known firm”, since this would
savour of advertisement. Similar considerations apply to
advertisements for articled clerks. The advertisements should not
contain any promotional element nor should there be any suggestion
that the services offered by the Chartered Accountant or his firm are
superior to those offered by other accountants.
Notice in the press relating to the success in an examination of an
individual candidate, should not contain any element of undesirable
publicity either in relation to the articled/audit clerk or an employee or
the member or the firm with whom he was served.
It is usual for local papers to publish details of the examination
success of local candidates. Some biographical information is often
included. The rule aforementioned is not intended to discourage the
printing of news of local interest but is intended to indicate the need for
restraint. The candidate’s name and address, school and local
background, examination passed with details of any prize or place
gained, the name of the principal, firm and town in which the principal
practices may be published.
The reports and certificates issued by a Chartered Accountant
bring him to the notice of the public in a greater or lesser degree. It is
therefore incumbent upon him to ensure that the extent and manner of
publication of certificates are limited to what is necessary to enable the
report or certificate to serve its proper purpose.
Members may appear on television and films and agree to
broadcast in the Radio or give lectures at forums and may give their
names and describe themselves as Chartered Accountants. Special
qualifications or specialised knowledge directly relevant to the subject
matter of the programme may also be given. But no reference should
be made, in the case of practicing member to the name and address or
services of his firm. What he may say or write must not be promotional
of him or his firm but must be an objective professional view of the
topic under consideration.
Publicity is permitted for appointments to positions of local or
national importance or for the views of members on matters of similar
importance. Mention of the membership of the Institute is desirable in

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such cases. What should be aimed at is to achieve suitable publicity
for the Institute and its members generally. Members giving talks or
lectures or attending conference may describe themselves as
Chartered Accountants only when they are acting in their capacity as
Chartered Accountants. Here again reference to the professional firm
of the member should not be given.
A Chartered Accountant in practice holding training courses,
seminars etc. for his staff may also invite the staff of other Chartered
Accountants and clients to attend the same. However, undue
prominence should not be given to the name of the Chartered
Accountant in any booklet or document issued in connection therewith.
Members writing articles or letters to the Press on subjects
connected with the profession may give their names and use the
description Chartered Accountants.
With regard to the size of sign board for his office that a member can
put up, it is a matter in which the members should exercise their own
discretion and good taste. Use of glow signs or lights on large-sized
boards as is used by traders or shop-keepers would not be proper. A
member can have a name board at the place of his residence with the
designation of a Chartered Accountant, provided it is a name plate or
name board of an individual member and not of the firm.
The Council’s attention has been drawn to the fact that more and
more Companies are appointing Chartered Accountants as directors
on their Boards. The prospectus or public announcements issued by
these Companies often publish descriptions about the Chartered
Accountant’s expertise, specialisation and knowledge in any particular
field or add appellations or adjectives to their names. Attention of the
members in this context is invited to the provisions of Clause (6) and
(7) of Part I of the First Schedule to the Chartered Accountants Act.
In order that the inclusion of the name of a member of the Institute
in the prospectus or public announcements or other public
communications issued by the Companies in which the member is a
director does not contravene the above noted provisions, it is
necessary that the members should take necessary steps to ensure
that such prospectus or public announcements or public
communications do not advertise his professional attainments and also
that such prospectus or public announcements or public
communications do not directly or indirectly amount to solicitation of
clients for professional work by the member. While it may be difficult to
lay down a rigid rule in this respect, the members must use their good
judgement, depending upon the facts and circumstances of each case

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to ensure that the above noted provisions are complied with both in
letter and spirit.
It is advisable for a member that as soon as he is appointed as a
director on the Board of a Company, he should specifically invite the
attention of the management of the Company to the aforesaid
provisions and should request that before any such prospectus or
public announcements or public communication mentioning the name
of the member concerned, is issued, the material pertaining to the
member concerned should, as far as practicable be got approved by
him.
The use of the expression ‘Chartered Accountant’ is permissible.
However, the member must ensure that descriptions about his
expertise, specialisation and knowledge in any particular field or other
appellations or adjectives are not published with his name. Particulars
about directorships held by the member in other Companies can,
however, be given, but the name of the firm of Chartered Accountants
in which the member is a partner, should not be given.
The Council has permitted Network amongst the firms registered
with the Institute. A Network is neither permitted to advertise nor to use
logo. The firms constituting a Network are permitted to use the words
“Affiliates/Members of …….” (a Network of Indian CA firms) on their
professional stationery. Once the relationship of network arises,
whether registered or not with the Institute, it will be necessary for such
a network to comply with all applicable ethical requirements prescribed
by the Institute from time to time. Members attention is drawn to the
announcement hosted in the website of the Institute and published in
February 2005 issue of the Journal in this regard.
For use of logos by Members on letter heads, visiting cards etc. the
Council had decided that the logos unconnected with the first letter of
the name of the firm or its partners or proprietors would not be
permitted for use by members in practice/firms of Chartered
Accountants on their letter heads, visiting cards etc. as the same
would have amounted to advertisement or smacking of publicity.
Accordingly, an announcement was published in October 1995 issue
of Journal at page 66.
Subsequent to above, the Institute came across cases of
registration of firm name in circumvention of the provisions contained
in the Regulation 190 of the Chartered Accountants Regulations, 1988.
The members/firms by themselves or through engineered name had
been seeking to obtain firm name approval based on the name of the
partner/s selected in the manner that logo of the firm would be identical

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to the firm name which would have not otherwise been permissible as
firm name under Regulation 190. In order to ensure compliance with
the Regulations, the Council at its meeting held in December 1997,
therefore, decided that the use of logo/monogram of any kind/form/
style/design/colour etc. whatsoever on any display material or media
e.g. paper stationery, documents, visiting cards, magnetic devices,
internet, sign board, by the members in practice and/or the firm of
Chartered Accountants, be prohibited. Use/printing of member/firm
name in any other manner tantamounting to logo/monogram was also
prohibited.
An announcement was published in February 1998 issue of the
Journal at pages 54 & 55 informing that the use of logo/ monogram as
above was prohibited with immediate effect in the case of newly
enrolled members in practice/new firms of Chartered Accountants. The
members already in practice/ existing firms of Chartered Accountants
using logo/monogram were advised to take immediate steps for
discontinuing use of the logo/monogram so as to stop using the
logo/monogram in any case before 1st July, 1998. The Council at its
meeting held in December 1999 has reiterated its decision to ban logo.
The guidelines/directions laid down by the Council as revised by
the Council from time to time for use of designation etc. and manner of
printing letter-heads and visiting cards of the President, Vice-President
of the Institute, Members of the Council, Chairmen of various non-
standing Committees of the Institute; Chairmen, other office bearers
and Members of the Regional Councils; Chairmen, other office-bearers
and Members of the Managing Committees of the Branches are
appearing in Appendix ‘D’ to this book.
The decisions of the Council/High Courts on this clause are given
below:
Where a Chartered Accountant used the designation ‘Incorporated
Accountant, London’ and ‘Registered Accountant, India’, in the
Balance Sheet and also failed to report to the shareholders in the
prescribed form under the Banking Companies Act - Held the
Chartered Accountant was guilty of the two charges. The word
‘member’ in Section 21 of the Act should be construed as including
a past member for the purpose of enquiry, as what was required
was membership at the time of the commission of the alleged
misconduct.
(Mirza M. Hussain in Re: - Page 24 of Vol. II of the Disciplinary
Cases and pages 26-29 of July, 1955 issue of the Institute’s
Journal-Judgement delivered on 10th May, 1955).

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A Chartered Accountant used the designation ‘Industrial and
Management Consultant’ in addition to the designation ‘Chartered
Accountant’ on printed circular sent to a stranger. Held, he was
guilty of professional misconduct under the clause.
(B.S.N. Bhushan in Re: - Page 989 of Vol.IV of the Disciplinary
Cases-decided on 11th and 12th January, 1965).
A Chartered Accountant wrote several letters to Government
Department, inter alia, pointing out seniority of his firm, sending his
life sketch and stating that he had a glorious record of service to
the country as well as to the organisation of accountancy
profession with a view to get the audit work. These letters were
clearly in the nature of advertising professional attainments. - Held,
he was guilty of professional misconduct under the clause.
(Sirdar P.S. Sodhbans in Re: - Page 1022 of Vol. IV of the
Disciplinary Cases - decided on 13th and 14th March, 1969).
Where a Chartered Accountant in his firm’s letter head had used
the designation ‘Manager (Liaison & Sales)’. Held that he was
guilty under clause (7) of Part I of the First Schedule.
(Bijoy Kumar in Re: - Page 69 of Vol. VII(2) of the Disciplinary
Cases – Council’s decision dated 16th September, 1991).
Where a Chartered Accountant had issued two insertions in a
Journal published by a Chamber of Commerce offering various
services and expressing his willingness to offer the concession in
respect of all services offered by him. Held that he was guilty under
clauses (6) & (7).
(N.O. Abraham Isaac Raj in Re: - Page 117 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 9th to 11th April,
1992).
Where a Chartered Accountant had addressed a letter to the
Managing Director of a Company offering his services as a
practising Chartered Accountant and giving impression that the
letter had been addressed to more than one organisation for the
above purpose, it was held that the member had contravened the
provisions of clauses (6) & (7).
(Yogesh Gupta in Re: - Page 400 of Vol.VII(2) of Disciplinary
Cases - Council's decision dated 23rd & 24th February, 1996)
Where a Chartered Accountant had used the designation and
expression other than the Chartered Accountant, mentioned his
experience as General Manager of a Cooperative Bank, expressed

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himself as President and Chief Executive of an Institute in his
professional documents and had depicted religion and politics in
his letterheads and letters for professional attainments. Held he
was guilty under clause (7).
(K. Bhattacharjee vs. B.K. Chakraborty - Page 462 of Vol.VII(2) of
Disciplinary Cases - Council's decision dated 11th to 13th
February, 1988 and Judgement dated 10th June, 1996 dismissing
appeal filed by the Respondent).
A Chartered Accountant had published a classified advertisement
in a newspaper saying that his services as Chartered Accountant
were available for various types of work. The advertisement
contained his name, designation as Chartered Accountant and also
details of the services rendered by him. He was held guilty of
violation of Clauses (6) & (7).
(S.C. Gupta in Re: - Page 618 of Vol. VII(2) of Disciplinary Cases –
Council’s decision dated 5th to 6th December, 1996).
A Chartered Accountant had issued an advertisement in a
newspaper, saying that he was available for various types of work.
By issuing the said advertisement, he had tried to (i) solicit clients
or professional work either directly or indirectly, and (ii) advertise
his professional attainments or services. Even though there was no
direct evidence to prove the guilt on his part, yet his non-
cooperative attitude in facing the enquiry, the enquiries by the
Institute’s office, the evidence tendered by the witness and the
replies of the Respondent made the Council to hold him guilty
under Clauses (6) & (7). It was held that he had, in fact, been
instrumental in issuing the impugned advertisement with a view to
solicit clients and had also advertised the professional services
offered by him.
(S.C. Gupta in Re: - Page 628 of Vol. VII(2) of Disciplinary Cases –
Council’s decision dated 5th to 6th December, 1996).
A Chartered Accountant sent New Year Greeting Cards bearing his
name, qualification, the name and address of his firm and also
containing the following:
“List of super hit books written by Suresh D. Chauhan. Guide to
win girls – Income-Tax raid. Contact for any type of bank for
institutional loans or deposits”. Held that the Chartered Accountant
contravened Clause (6) & (7) of Part-I of the First Schedule in
having solicited assignment relating to any type of bank or
institutional loans or deposits.

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(S.D. Chauhan in Re: – Page 226 of Vol.VIII(2) of Disciplinary
Cases – Council’s decision dated 1st
- 3rd
August, 2001)
Where the Respondent used the designation “Share and Stock
Sub-broker” alongwith the designation of “Chartered Accountant”
violating inter alia provisions of this clause.
(A.R. Ranawat in Re: - Page 414 of Vol. VIII (2) of Disciplinary
Cases – Council’s decision dated 26th
to 28th
August, 2001)
A Chartered Accountant had issued the following advertisements in
“Hindustan Times” –
“Experienced C.A. having Posh Office with telephones, Computer,
Telex, Car, Qualified Staff available for taxation, Company Law,
Accounts, Internal control, Financing from banks and institutions,
contact phone ……….” By issuing the above advertisement, the
Respondent has tried to (i) solicit clients of professional work either
directly or indirectly, (ii) advertised his professional attainments of
services in violation of Clause (6) & (7) Part I of the First Schedule.
(Rajeev Sharma in Re: - Page 454 of Vol.VIII(2)of Disciplinary
Cases – Council’s decision dated 26th
to 28th
August, 2001)
Where a Chartered Accountant advertised services and used
designations/expression other than “Chartered Accountant” in
professional stationery. Held that he was inter alia guilty of
professional misconduct under the Clause (7) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Sri Nath Prasad vs. Vineet Aggarwal – Page 23 Vol. IX-2B-21(4)
of Disciplinary Cases – Council’s decision dated 2nd
to 4th
February, 2004)
A Chartered Accountant firm was working as Recovery Agent for
Housing Finance Company without taking any permission from the
Council to engage in any work other than the profession of
Chartered Accountancy. The Respondent had written a letter to the
Complainant for recovery of money wherein he represented
himself as an agent of LIC housing Finance Ltd. He intimidated the
Complainant with harsh and coercive method of recovery. Held
that the Respondent is guilty under clauses (7) & (11) of Part I of
First Schedule.
(Yogesh Kumar Sharma v. O.P. Maheshwari of M/s O.P.
Maheshwari & Co. (25-CA(212)/2003). - to be published later
under Disciplinary Cases Volume X-2B–21(4). Council decision of
281st
Meeting held in October, 2008)

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Clause (8): accepts a position as auditor previously held by another
chartered accountant or a certified auditor who has been
issued certificate under the Restricted Certificate Rules,
1932 without first communicating with him in writing;
It must be pointed out that professional courtesy alone is not the
major reason for requiring a member to communicate with the existing
accountant who is a member of the Institute or a certified auditor. The
underlying objective is that the member may have an opportunity to
know the reasons for the change in order to be able to safeguard his
own interest, the legitimate interest of the public and the independence
of the existing accountant. It is not intended, in any way, to prevent or
obstruct the change. When making the enquiry from the retiring
auditor, the one proposed to be appointed or already appointed should
primarily find out whether there are any professional or other reasons
why he should not accept the appointment.
It is important to remember that every client has an inherent right to
choose his accountant; also that he may, subject to compliance with
the statutory requirements in the case of limited Companies, make a
change whenever he chooses, whether or not the reasons which had
impelled him to do so are good and valid. The change normally occurs
where there has been a change of venue of business and a local
accountant is preferred or where the partner who has been dealing
with the clients affairs retires or dies; or where temperaments clash or
the client has some good reasons to feel dissatisfied. In such
cases, the retiring auditor should always accept the situation with good
grace.
The existence of a dispute as regards the fees may be root cause
of an auditor being changed. This would not constitute valid
professional reasons on account of which an audit should not be
accepted by the member to whom it is offered. However, in the case of
an undisputed audit fees for carrying out the statutory audit under the
Companies Act, 1956 or various other statutes having not been paid,
the incoming auditor should not accept the appointment unless such
fees are paid. In respect of other dues, the incoming auditor should in
appropriate circumstances use his influence in favour of his
predecessor to have the dispute as regards the fees settled. The
professional reasons for not accepting an audit would be:
(i) Non-compliance of the provisions of Sections 224 and 225
of the Companies Act as mentioned in Clause (9);
(ii) Non-payment of undisputed audit fees by auditees other
than in case of sick units for carrying out the statutory audit

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under the Companies Act, 1956 or various other statutes;
and
(iii) Issuance of a qualified report.
In the first two cases, an auditor who accepts the audit would be
guilty of professional misconduct. In this connection, attention of
members is invited to the Council Guidelines No. 1-CA/(7)/02/2008
dated 08.08.08 appearing in Chapter-3 of the book and also published
at page 686 of October, 2008 issue of the Journal. In the said
guidelines, Council has explained that the provision for audit fee in
accounts signed by both the auditee or the auditor shall be considered
as “ undisputed” audit fee and “ sick unit” shall mean where the net
worth is negative.
In the last case, however, he may accept the audit if he is satisfied
that the attitude of the retiring auditor was not proper and justified. If,
on the other hand, he feels that the retiring auditor had qualified the
report for good and valid reasons, he should refuse to accept the audit.
There is no rule, written or unwritten, which would prevent an auditor
from accepting the appointment offered to him in these circumstances.
However, before accepting the audit, he should ascertain the full facts
of the case. For nothing will bring the profession to disrepute so much
as the knowledge amongst the public that if an auditor is found to be
“inconvenient” by the client, he could readily be replaced by another
who would not displease the client and this point cannot be too over-
emphasised.
What should be the correct procedure to adopt when a prospective
client tells you that he wants to change his auditor and wants you to
take up his work? There being two persons involved, the Company
and the old auditor, the former should be asked whether the retiring
auditor had been informed of the intention to change. If the answer is
in the affirmative, then a communication should be addressed to the
retiring auditor. If, however, it is learnt that the old auditor has not been
informed, and the client is not willing to make the first move, it would
be necessary to ask him the reason for the proposed change. If there
is no valid reason for a change, it would be healthy practice not to
accept the audit. If he decides to accept the audit he should address a
communication to the retiring auditor.
As stated earlier, the object of the incoming auditor, in
communicating with the retiring auditor is to ascertain from him
whether there are any circumstances which warrant him not to accept
the appointment. For example, whether the previous auditor has been
changed on account of having qualified his report or he had expressed

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a wish not to continue on account of something inherently wrong with
the administration of the business. The retiring auditor may even give
out information regarding the condition of the accounts of the client or
the reason that impelled him to qualify his report. In all these cases it
would be essential for the incoming auditor to carefully consider the
facts before deciding whether or not he should accept the audit, and
should he do so, he must also take into account the information while
discharging his duties and responsibilities.
Sometimes, the retiring auditor fails without justifiable cause except
a feeling of hurt because of the change, to respond to the
communication of the incoming auditor. So that it may not create a
deadlock, the auditor appointed can act, after waiting for a reasonable
time for a reply.
The Council has taken the view that a mere posting of a letter
under certificate of posting is not sufficient to establish communication
with the retiring auditor unless there is some evidence to show that the
letter has in fact reached the person communicated with. A Chartered
Accountant who relies solely upon a letter posted under certificate of
posting therefore does so at his own risk.
The view taken by the Council has been confirmed in a decision by
the Rajasthan High Court in J.S. Bhati vs. The Council of the Institute
of the Chartered Accountants of India and another. (Pages 72-79 of
Vol. V of Disciplinary Cases published by the Institute - Judgement
delivered on 29th August, 1975). The following observations of the
Court are relevant in this context:-
“Mere obtaining a certificate of posting in my opinion does not fulfill
the requirements of clause (8) of Schedule I as the presumption
under Section 114 of the Evidence Act that the letter in due course
reached the addressee cannot replace that positive degree of proof
of the delivery of the letter to the addressee which the letters of the
law in this case require. The expression ‘in communication with’
when read in the light of the instructions contained in the booklet
‘Code of Conduct’ cannot be interpreted in any other manner but to
mean that there should be positive evidence of the fact that the
communication addressed to the outgoing auditor by the incoming
auditor reached his hands. Certificate of posting of a letter cannot,
in the circumstances, be taken as positive evidence of its delivery
to the addressee.”
Members should therefore communicate with a retiring auditor in
such a manner as to retain in their hands positive evidence of the
delivery of the communication to the addressee. In the opinion of the

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Council, communication by a letter sent “Registered Acknowledgement
due” or by hand against a written acknowledgement would in the
normal course provide such evidence.
The Council is of the opinion that it would be a healthy practice to
communicate with the member who had done the work previously in
every case where a Chartered Accountant is required to give a
certificate or in respect of a verification of the books of account for
special purpose as well as in cases where he is appointed as a
Liquidator, Trustee, or Receiver and his predecessor was a Chartered
Accountant.
As a matter of professional courtesy and professional obligation it
is necessary for the new auditor appointed to act jointly with the earlier
auditor and to communicate with such earlier auditor.
It would also be a healthy practice if a tax auditor appointed for
conducting special audit under the Income-tax Act, communicates with
the member who has conducted the statutory audit.
It is desirable that a member, on receiving communication from the
auditor who has been appointed in his place, should send a reply to
him as soon as possible setting out in detail the reasons, which
according to him had given rise to the change and other attendant
circumstances but without disclosing any information as regards the
affairs of the client which he is not competent to do.
The Council has taken the view that it is not obligatory for the
auditor appointed to conduct a Special Audit under Section 233A of
Companies Act, 1956 to communicate with the previous auditor who
had conducted the regular audit for the period covered by the Special
Audit.
The Council has also laid down the detailed guidelines on the
subject as under:-
1. The requirement for communicating with the previous auditor
being a Chartered Accountant in practice would apply to all
types of audit viz., statutory audit, tax audit, internal audit,
concurrent audit or any other kind of audit.
2. Various doubts have been raised by the members about the
terms “audit”, “previous auditor”, “Certificate” and “report”,
normally while interpreting the aforesaid Clause (8). These
terms need to be clarified.
3. As per para 2 of the Institute’s publication viz. Standard on
Auditing (SA) 200, “Basic Principles Governing an Audit”, an

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“audit” is the independent examination of financial information
of any entity, whether profit oriented or not, and irrespective of
its size or legal form, when such an examination is conducted
with a view to expressing an opinion thereon.
4. The term “previous auditor” means the immediately preceding
auditor who held same or similar assignment comprising
same/similar scope of work. For example, a Chartered
Accountant in practice appointed for an assignment of physical
verification of inventory of raw materials, spares, stores and
finished goods, before acceptance of appointment, must
communicate with the previous auditor being a Chartered
Accountant in practice who was holding the appointment of
physical verification of inventory of raw materials, stores,
finished goods and fixed assets. The mandatory
communication with the previous auditor being a Chartered
Accountant is required even in a case where the previous
auditor happens to be an auditor for a year other than the
immediately preceding year.
5. As explained in para 2.2 of the Institute’s publication viz.,
‘Guidance Note on Audit Reports and Certificates for Special
Purposes’, a “certificate” is a written confirmation of the
accuracy of the facts stated therein and does not involve any
estimate or opinion. A “report”, on the other hand, is a formal
statement usually made after an enquiry, examination or review
of specified matters under report and includes the reporting
auditor’s opinion thereon. Thus, when a reporting auditor
issues a certificate, he is responsible for the factual accuracy of
what is stated therein. On the other hand, when a reporting
auditor gives a report, he is responsible for ensuring that the
report is based on factual data, that his opinion is in due
accordance with facts, and that it is arrived at by the application
of due care and skill.
6. A communication is mandatorily required for all types of
audit/report where the previous auditor is a Chartered
Accountant. For certification, it would be healthy practice to
communicate. In case of assignments done by other
professionals not being Chartered Accountants, it would also
be a healthy practice to communicate.
7. Although the mandatory requirement of communication with
previous auditor being Chartered Accountant applies, in
uniform manner, to audits of both government and non-

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government entities, yet in the case of audit of government
Companies/banks or their branches, if the appointment is made
well in time to enable the obligation cast under this clause to be
fulfilled, such obligation must be complied with before
accepting the audit. However, in case the time schedule given
for the assignment is such that there is no time to wait for the
reply from the outgoing auditor, the incoming auditor may give
a conditional acceptance of the appointment and commence
the work which needs to be attended to immediately after he
has sent the communication to the previous auditor in
accordance with this clause. In his acceptance letter, he should
make clear to the client that his acceptance of appointment is
subject to professional objections, if any, from the previous
auditors and that he will decide about his final acceptance after
taking into account the information received from the previous
auditor.
The decisions of the Council/High Court on this matter are briefly
given in the following paragraphs:-
Where a Chartered Accountant failed to communicate in writing
with the previous auditor of his appointment as auditor of a Co-
operative Bank and such omission was not intentional-Held that
the breach was only technical and that it was open to the High
Court to award a lesser punishment than removal of a member.
(S.V. Kharwandikar vs. D.K. Borkar - Page 113 of Vol.I of the
Disciplinary Cases and page 236 of November, 1952 issue of the
Institute’s Journal-Judgement delivered on 18th August, 1952).
A chartered Accountant commenced the work of audit on the very
day he sent letter to the previous auditor - Held, he was guilty of
professional misconduct under the clause. The appointment could
be accepted only when the outgoing auditor does not respond
within a reasonable time.
(S.N. Johri vs. N.K. Jain - Page 1042 of Vol.IV of the Disciplinary
Cases - decided on 13th, 14th & 15th September, 1973).
A Chartered Accountant sent a registered letter to the previous
auditor after the commencement of the audit by him. - Held he was
guilty of professional misconduct under the clause.
(Radhe Shyam vs. K.S. Dubey - Page 234 of Vol. V of the
Disciplinary Cases - decided on 15th & 16th February, 1974).
A Chartered Accountant commenced the audit within five days of
the date of his appointment without sending any communication to

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the previous auditor. The previous auditor also denied the receipt
of any communication - Held he was guilty of professional
misconduct under the clause.
(S.B. Chidrawar vs. C.K. Rao - Page 251 of Vol. V of the
Disciplinary Cases - decided on 19th & 20th July, 1974).
A Chartered Accountant had sent a communication to the previous
auditor under certificate of posting without obtaining any
acknowledgement thereof. The Council held the member guilty in
terms of this Clause.
On an appeal made by the member, the High Court observed that
the expression “in communication with” when read in the light of
the instructions contained in the booklet “Code of Conduct” could
not be interpreted in any other manner but to mean that there
should be positive evidence of the fact that the communication
addressed to the outgoing auditor had reached his hands.
Certificate of Posting of a letter could not in the circumstances be
taken as positive evidence of its delivery to the addressee.
(M.L. Agarwal vs. J.S. Bhati - Page 65 of Vol. V of the Disciplinary
Cases and pages 305-307 of November, 1975 issue of the
Institute’s Journal - Judgement delivered on 29th August, 1975).
A Chartered Accountant sent under postal certificate, letters to the
previous auditor before appointment and also before
commencement of audit by him but there was no proof that they
were received by the previous auditor. - Held he was guilty of
professional misconduct under the clause. The communication was
not proper within the meaning of the words Communication with
occurring in the clause.
(Mehra Khanna & Co. vs. Man Mohan Mehra - Page 292 of Vol.V
of the Disciplinary Cases - decided on 22nd & 23rd December,
1976).
A Chartered Accountant sent a letter by ordinary post to the
previous auditor after the acceptance of the audit assignment.
Moreover, no evidence was produced to show that the said letter
was either sent to or was received by the previous auditor. - Held
he was guilty of professional misconduct under the clause as the
same amounts to non-communicating with the previous auditor.
(K.K. Sud vs. K.N. Chandla - Page 306 of Vol. V of the Disciplinary
Cases - decided on 27th, 28th & 29th October, 1978).
A member sent under Certificate of posting a letter to the previous

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auditor before accepting his appointment as the auditor of a society
but there was no proof that the said letter was received by the
previous auditor. He was found guilty in terms of this Clause
because a mere posting of a letter under certificate of posting is
not sufficient to establish communication with the retiring auditor
unless there is some other evidence to show that the letter has in
fact reached the person communicated with.
(A.K. Todani vs. A.P. Bhadani - Page 177 of Vol.VI(2) of
Disciplinary Cases - Decided on 15th, 16th and 17th December,
1988)
The provision of Clause (8) requiring a communication with the
previous auditor is absolute and applicable even in respect of
appointment by the Government agencies and even in cases
where the member is aware that the previous auditor had been
made aware of the appointment.
(Rajeev Kumar vs. R.K. Agrawal - Page 143 of Vol. VI(2) of
Disciplinary Cases - Decided on 15th, 16th and 17th December,
1988).
The requirements of Clause (8) of Part I of the first Schedule can
be considered to have been complied with only:
(i) if there is evidence that a communication to the previous
auditor had been by R.P.A.D.
(ii) if there was positive evidence about delivery of the
communication to the previous auditor.
In the absence of both, the member should be found to have
contravened this Clause.
(R.M. Singhai & Associates vs. R.V. Agarwal - Page 155 of Vol.
VI(2) of Disciplinary Cases - Decided on 15th, 16th and 17th
December, 1988)
A member sent “under Certificate of posting” letter to the previous
auditor before accepting the audit of a charitable society. He could
not produce any conclusive evidence that the said letter was
received by the previous auditor. Mere posting of a letter “under
Certificate of posting” is not sufficient to prove communication with
the retiring auditor unless there is other evidence that the letter has
in fact reached the person communicated with. He was found guilty
in terms of this Clause.
(J. Patnaik vs. Y. Pani - Page 219 of Vol. VI(2) of Disciplinary
Cases - Decided on 5th, 16th and 17th December, 1988).

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A member sent “under Certificate of posting” letter to the previous
auditor before accepting the tax audit of a partnership firm. But
there was no proof that the said letter was received by the outgoing
auditor. He was found guilty in terms of this Clause because a
mere posting of a letter “under certificate of posting” is not
sufficient to establish communication with the retiring auditor
unless there is some other evidence to show that the letter has in
fact reached the person communicated with.
(S.K. Jain vs. D.K. Karmakar - Page 348 of Vol. VI(2) of
Disciplinary Cases - Decided on 11th, 12th, 13th and 14th
September, 1989)
Where a Chartered Accountant had conducted tax audit of a firm
without first communicating in writing with the Complainant, who
was the previous tax auditor of the said firm. Held that he was
guilty under the clause.
(V.A. Parikh vs. R.I. Galledar - Page 19 of Vol. VII(2) of the
Disciplinary Cases – Council’s decision dated 6th to 8th June,
1991).
Where a Chartered Accountant had accepted a position as auditor
of a co-operative bank previously held by the Complainant without
first communicating with him in writing before accepting the audit.
Held that he was guilty under the clause.
(D.H. Firke vs. L.B. Jadhav - Page 26 of Vol. VII(2) of the
Disciplinary Cases – Council’s decision dated 6th to 8th June,
1991).
Where a Chartered Accountant had not replied to two letters which
were sent to him and had conducted the audits without
communicating with the Complainant in writing. Held that the
member was guilty under the clause.
(V.K. Gupta vs. A.K. Jain - Page 49 of Vol.VII(2) of the Disciplinary
Cases – Council’s decision dated 16th September, 1991).
Where a Chartered Accountant had not communicated with the
Complainant before accepting the appointment as auditor of a
school. Held that he was guilty under the clause.
(J.S. Bhati vs. M.L. Aggarwal - Page 87 of Vol.VII(2) of Disciplinary
Cases – Council’s decision dated 4th & 5th December, 1975 and
Judgement dated 30th October, 1991 of Rajasthan High Court)
Where a Chartered Accountant had accepted the position as an
auditor of two Companies previously held by the Complainant

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without first communicating with him in writing. Held that he was
guilty under the clause.
(S.K. Kansal vs. S.L. Gupta - Page 131 & 141 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 16th to 18th July,
1992).
Where a Chartered Accountant had accepted the audit of a firm
under Section 44AB of the Income-tax Act without first
communicating with the Complainant. Held that he was guilty
under the clause.
(M.R. Daga vs. R.K. Vora - Page 174 of Vol.VII(2) of Disciplinary
Cases – Council’s decision dated 25th to 27th September, 1992).
Where a Chartered Accountant had accepted the position as tax
auditor of a Company and as statutory auditor of another Company
previously held by the Complainant without first communicating
with the Complainant in writing. Held that he was guilty under the
clause.
(Naresh H. Kumbhani vs. P.V. Dalal - Page 272 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 24th to 26th
November, 1993).
Where a Chartered Accountant had accepted the position as a
statutory auditor of a Company without first communicating in
writing with the Complainant’s Firm which was the previous auditor.
Held that he was guilty under the clause.
(Naresh H. Kumbhani vs. P.V. Dalal - Page 309 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 24th to 26th
November, 1993).
A Chartered Accountant accepted the tax audit work of a unit of a
State Textile Corporation, for the assessment years 1986-87 and
1987-88 under Section 44AB of the Income-tax Act, 1961, without
communicating with the Complainant who had done the work for
assessment year 1985-86. Although the tax audit report of the
Assessment Year 1985-86 was signed much later, yet there was
no doubt that the Complainant was holding the position of the tax
auditor of the said unit, on the date of appointment of the said
Chartered Accountant for the next two years viz., 1986-87 and
1987-88. Accordingly, it was incumbent upon him to communicate
with the Complainant before accepting the tax audit of the
Corporation as a whole for the assessment years 1986-87 and
1987-88. Therefore, he was held guilty under Clause (8).

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(M.S. Padmanabhan Nair vs. R. Chidambaram - Page 501 of Vol.
VII(2) of Disciplinary Cases – Council’s decision dated 5th to 6th
December, 1996).
It was alleged that the Respondent had obtained the work of
internal audit of a club by personal communication and personal
visits. Also, he had accepted the position of Internal Auditor of the
said club without having made any communication in writing with
the Complainant. The charge of solicitation of professional work
could not be proved. Since he had accepted the appointment as
Internal Auditor of the club before he sent the letter of
communication under Certificate of Posting, he was held guilty
under the Clause.
(N.C. Bhargava vs. Akshay Kumar - Page 636 of Vol. VII(2) of
Disciplinary Cases – Council’s decision dated 16th to 18th
January, 1997).
A Chartered Accountant conducted the tax audit of a unit without
first communicating with the retiring auditor and the same was
admitted by him during the course of enquiry. He was held guilty
under Clause (8).
(M.L. Agarwal vs. N.K. Gupta - Page 800 of Vol. VII(2) of
Disciplinary Cases – Council’s decision dated 8th to 10th
December, 1997).
The Complainant, a Chartered Accountant alleged that the
Respondent had accepted the position as auditor of a Company: (i)
without first ascertaining whether the requirements of Section 224
and 225 of the Companies Act, 1956 in respect of such
appointment had been duly complied with; (ii) without
communicating with him in writing in respect of such appointment;
and (iii) in such conditions as to constitute under-cutting. He was
held guilty under Clause (8) and not guilty under Clauses (9) and
(12).
(Anil M. Parikh vs. K. Narayanan – Council’s decision dated 1st to
4th July, 1998 – Page 26 of Volume VIII(2) of Disciplinary Cases).
A Chartered Accountant accepted the tax audit assignment of a
private medical agency without first communicating with the
Complainant, the previous auditor. The Council held him guilty
under Clause (8).
(Hariom Agarwal vs. Sukhdev Madnani - Council's decision dated
4th to 6th September, 1995 and 1st to 4th July, 1998. Page 50 of
Volume VIII(2) of Disciplinary Cases).

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Where a Chartered Accountant accepted the appointment as
auditor without first communicating with the previous auditor and
without first ascertaining from the Company whether the
requirement of Sections 224 & 225 of the Companies Act, 1956
had been duly complied with. Held that he was guilty under the
Clauses (8) & (9).
(Lalit K. Gupta of M/s Lalit K. Gupta & Co. vs. Ajay Bansal – Page
145 of Vol.VIII (2) of Disciplinary Cases – Council’s decision dated
1st
to 3rd
August, 2001)
Where a Chartered Accountant accepted audit of three Companies
without first communicating in writing with the previous auditor. He
also accepted the audit without ascertaining whether the provisions
of Section 225 of the Companies Act, 1956 had been complied
with. Held that he was guilty of professional misconduct under the
Clauses (8) & (9).
(J.R. Kakadiya vs. M.S. Chokshi – Page 179 of Vol. VIII (2) of
Disciplinary Cases – Decision of the Council dated 1st
to 3rd
August, 2001)
Two Chartered Accountants accepted and conducted statutory
audit and tax audit of three entities without first communicating with
the previous auditor. The Respondents had sent Communication
through ‘Certificate of Posting’ as against the required mode of
sending it through registered A.D. prescribed by the Council. Held
that the Respondents were guilty of professional misconduct under
the Clause.
(V.K. Khanna vs. Rakesh K. Mehrotra & Deepak Seth – Page 207
of Vol. VIII (2) of Disciplinary Cases – Council’s decision dated 1st
to 3rd
August, 2001)
Where a Chartered Accountant accepted tax audit without
communicating with the previous auditor. Held that he was guilty of
professional misconduct under Clause (8) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Ms. Urmila Atul Shah vs. R. P. Sharma.- Page 303 of Vol. VIII (2)
of Disciplinary Cases – Council’s decision dated 1st
to 3rd
August,
2001)
Where a Chartered Accountant accepted the tax audit and
communicated with the previous auditor after completing the same.
Thus, proper communication was not made by the Respondent
with the previous auditor within the time. Held that he was guilty of
professional misconduct under the Clause.

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(Kamlesh K. Agarwal vs. Pawan K. Agarwal - Pages 391 of Vol.
VIII (2) of Disciplinary Cases – Council’s decision dated 1st
to 3rd
August, 2001)
Where a Chartered Accountant accepted the position as auditor of
Army Canteen without prior communication in writing with the
previous auditor. Held that he was guilty of professional
misconduct under the Clause.
(Jethanand Sharda vs. Deepak Mehta - Pages 403 of Vol. VIII (2)
of Disciplinary Cases – Council’s decision dated 1st
to 3rd
August,
2001. Also published in the December 2002 issue of Institute’s
journal at page 628)
Where a Chartered Accountant accepted the position as auditor
without first ascertaining from the Company as to whether the
provisions of Section 224 (7) of the Companies Act were complied
with and without first communicating with the previous auditor of
the Company. Held that he was inter alia guilty of professional
misconduct under Clauses (8) & (9) of the First Schedule of the
Chartered Accountants Act, 1949.
(M/s Jha & Associates vs. S. Dhar - Page 466 of Vol. VIII (2) of
Disciplinary Cases – Council’s decision dated 6th
to 8th
December,
2001)
Where a Chartered Accountant accepted and conducted the audit
without first communicating with the previous auditor. Held that he
was guilty of professional misconduct under Clause (8) of the First
Schedule to the Chartered Accountants Act, 1949.
(N.C. Kumbhat of M/s N.C. Kumbhat & Co. vs. N. Banerjee - Page
505 of Vol. VIII (2) of Disciplinary Cases – Council’s decision dated
6th
to 8th
December, 2001)
A Chartered Accountant had accepted position of Tax Auditor
without communicating with the previous auditor. Held that the
Respondent was guilty of professional misconduct falling within the
meaning of Clause (8) of Part I of the First Schedule to the
Chartered Accountants Act, 1949.
(S.K. Sharma vs. Rajendra Bajaj – Page 1 of Vol.IX-2B-21(4) of
Disciplinary Cases – Council’s decision dated 2nd
to 4th
July, 2002)
A Chartered Accountant accepted statutory audit of a private
limited Company without first ascertaining from the Company
whether the requirements of Section 225 of the Companies Act,
1956 in respect of such appointment, have been duly complied

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with. He also accepted the audit of the Company without making
any communication with the previous auditor and completed and
signed the audit report. Held that he was inter alia guilty of
professional misconduct under the Clauses (8) and (9).
(M.K. Banerjee of M/s M. Banerjee & Company vs. Bhaskar Maitra
- Page 83 Vol.IX-2A-21(4) of Disciplinary Cases – Council’s
decision dated 11th
to 14th
September, 2002)
Where a Chartered Accountant accepted a position as auditor of a
school without first communicating in writing with the previous
auditor while the Respondent claim to have sent the letter, no letter
was received by the complainant. In spite of repeated efforts of
postal authorities the Respondent did not accept the Registered
A.D. letters from the complainant. Held that he was guilty of
professional misconduct under the Clause.
(D.R. Soni vs. H.L. Joshi - Page101 Vol.IX-2B-21(4) of Disciplinary
Cases – Council’s decision dated 11th
to 14th
September 2002)
Where a Chartered Accountant accepted the audit without
communicating with the previous auditor. Held that he was guilty of
professional misconduct within the meaning of Clause (8) of Part I
of the First Schedule of the Chartered Accountants Act, 1949.
(Tara Mantri vs. Ramesh D. Agrawal – Page 365 Vol.IX-2A-21(4)
of Disciplinary Cases – Council’s decision dated 11th
to 13th
November, 2002)
Where a Chartered Accountant accepted the audit of a
Government Agency without first communicating with the previous
auditor. Held that he was guilty of professional misconduct within
the meaning of Clause (8) of Part I of the First Schedule of the
Chartered Accountants Act, 1949.
(J.Patnaik vs. V. Brahmananda Sahu – Page 580 Vol.IX-2A-21(4)
of Disciplinary Cases – Council’s decision dated 11th
to 13th
November, 2002)
While the audit was pending, the complainant came to know that
the Respondent had signed the accounts of the Company for the
two years. The Respondent never communicated with that
complainant. The complainant had never resigned from the
Auditorship of the Company. No notice for the complainant’s
removal was sent by the Company. The provision of the Section
225 of the Companies Act, 1956 were not complied with properly
by the Company and all this was ignored by the Respondent. Held
that the Respondent was guilty of professional misconduct within

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the meaning of Clauses (8) & (9) of the Part I of the First Schedule
of the Chartered Accountants Act, 1949.
(J.P. Gupta vs. Charanjit Malhotra - Page 113 Vol.IX-2A-21(4)of
Disciplinary Cases – Council’s decision dated 11th
to 13th
November, 2002)
The Respondent accepted the position of auditor of private limited
Company without first communicating with the previous auditor.
The Respondent had also accepted the appointment as auditor
without first ascertaining from the Company as to whether the
requirement of Section 224 & 225 of the Companies Act, 1956 in
respect of such appointment have been duly complied with. Held
that he was guilty of professional misconduct under the Clause (8)
& (9) of the Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(R.L.P. Sinha of M/s R.L.P. Sinha & Associates vs. A.K. Manglik -
Page126 Vol.IX-2A-21(4) of Disciplinary Cases – Council’s
decision dated 11th
to 13th
November, 2002)
Even while another C.A. Firm was doing audit of a Company and
raised audit queries, the Respondent on being approached by the
Company accepted the position of statutory auditor. The
Respondent communicated with the previous auditor after already
signing the balance sheet. He did not bother to examine whether
the provisions of Section 224 and 225 have been duly complied
with. Held that he was guilty of professional misconduct under
Clause (8) & (9) of the First Schedule of the Chartered
Accountants Act, 1949.
(S.P. Khemka vs. T.G. Ramanathan – Page 387 Vol IX -2A -21(4)
of Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where the Respondent omitted to communicate with the previous
auditor before accepting the audit of private limited Company and
also without first ascertaining whether requirements of Sections
224, 225 & 226 of the Companies Act, 1956 were complied with.
Held that he was guilty of professional misconduct under Clause
(8) & (9) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(V.K. Wadhwa vs. G.P. Makkar – Page451 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where a Chartered Accountant accepted the tax audit u/s 44AB of

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the Income-Tax Act without first communicating with the previous
auditor. The complainant wrote a letter to the Respondent to bring
the aforesaid default to his notice but did not received any reply
from the Respondent. The Respondent had telephonically talked to
the complainant and said that the client explained him that the
previous auditor had gone out of station and therefore he wanted
him to audit his firm’s account. The Respondent accepted the said
explanation of the client without communicating with the
complainant in writing. Held that he was guilty of professional
misconduct under Clause (8) of Part I of the First Schedule of the
Chartered Accountants Act, 1949.
(H.M. Kataria vs. R.K. Malpani – Page467 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where the Respondent conducted the tax audit without first
communicating with the previous auditor. Held that he was guilty of
professional misconduct under Clause (8) of Part I of the First
Schedule of the Chartered Accountants Act, 1949.
(Shri Prakash Agarwal vs. Sanjay Kumar Gupta – Page482 Vol.IX-
2A-21(4) of Disciplinary Cases – Council’s decision dated 26th
to
28th
December 2002)
The Complainant was the statutory auditor/tax auditor of five
Companies/firms and part audit was done for two entities. The
Complaint sent four letters to the management for commencement
of remaining period/remaining firms. The complainant was then
informed by the management that the audit statement had been
already issued by the Respondent firm. Neither the firms/
Companies had sent any prior information/board/AGM resolution
regarding the change of auditor nor the Respondent had sent any
intimation regarding the acceptance of audit. Held that he was
guilty of professional misconduct under Clause (8) and (9) of Part I
of the First Schedule of the Chartered Accountants Act, 1949.
(Sunil Kashyap of M/s P.C. Bafna & Co. vs. Deepak Batra –
Page435 Vol.IX-2A-21(4) of Disciplinary Cases – Council’s
decision dated 26th
to 28th
December 2002)
Where a Chartered Accountant accepted the audit of a
Government Agency without first communicating with the Previous
Auditor. Held that he was guilty of professional misconduct under
the Clause.
(J. Patnaik vs. G.R. Mekap – Page 511 Vol.IX-2A-21(4) of

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Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where a Chartered Accountant accepted the audit of a
Government Agency without first communicating with the Previous
Auditor. Held that he was guilty of professional misconduct under
Clause (8) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(J. Patnaik vs. Brahmananda Sahu – Page 580 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where a Chartered Accountant accepted and conducted the audit
of a Company without first communicating with the Previous
Auditor. Held that he was guilty of professional misconduct under
Clause (8) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(S.L. Damania vs. S.P. Kapadia – Page 527 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
December, 2002)
Where a Chartered Accountant, even before informing the
complainant who was the auditor of the Company and doing the
audit, signed the balance sheet and informed the complainant after
signing the balance sheet. Held that he was inter alia guilty of
professional misconduct under the Clause.
(Ashok Kumar Pathak of M/s A.K. Pathak & Associates vs. Yogesh
Bansal of M/s Y.K.B. Associates – Page 564 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 26th
to 28th
December 2002)
A Chartered Accountant had accepted the tax audit assignment
without any written communication to the previous auditor and at
the behest of two directors, and one employee of the Company,
despite the knowledge and information that the Complainant had
already completed it. The Respondent not even cared to know the
reasons for change of tax auditors by the Company. He despite full
knowledge and information that the Complainant’s legitimate
professional fee was not paid by the said Company acted in
collusion with the Directors and employee of the Company. Held
that he was guilty of professional misconduct under the Clause.
(Suresh S. Thakkar vs. Virendra S. Nayyar – Page 759 Vol.IX-2A-
21(4) of Disciplinary Cases – Council’s decision dated 16th
to 18th
September 2003)

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Where a Chartered Accountant accepted the tax audit of 5 firms
without first communicating with the previous auditor. Held that the
Chartered Accountant is guilty of professional misconduct within
the meaning of the Clause.
(G.K. Khandelwal of M/s G.K. Khandelwal & Associates vs. Atul
Neema of M/s Atul Neema & Company, Ujjain – Page 649 Vol.IX-
2A-21(4) of Disciplinary Cases – Council’s decision dated 16th
to
18th
September 2003)
Where a Chartered Accountant accepted the tax audit of two mills
without first communicating with the previous auditor. When the
matter was taken up by the complainant with the Respondent, the
latter replied that he had started the audit work without
communicating with the former only in the interest of completing
the work in time. Held that he was guilty of professional misconduct
under the Clause.
(M. Gopalasamy vs. N. Raja – Page 834 Vol.IX-2A-21(4) of
Disciplinary Cases – Council’s decision dated 16th
to 18th
September, 2003)
The Complainant was appointed statutory auditor of a private
limited Company but the Company did not get their accounts
audited by the Complainant. Later the Company produced a
Balance Sheet and Profit and Loss Account before the complainant
for statutory audit and report prepared by the Respondent’s firm in
the capacity as an internal auditor without any books of account,
which the complainant refused to do. The Respondent was
appointed as internal auditor, then as branch auditor and finally as
statutory auditor without any knowledge of the complainant. The
Respondent signed the unaudited financial statement as the
statutory auditor and the same was filed with the Registrar of
Companies under section 220 of the Companies Act, 1956. Held
that the Chartered Accountant is guilty of professional misconduct
within the meaning of Clauses (8) & (9) of Part I of First Schedule
to the Chartered Accountants Act, 1949.
(Phool Chand Gupta vs. Parshu Ram Bhagat – Page 671 Vol.IX-
2A-21(4) of Disciplinary Cases – Council’s decision dated 16th
to
18th
September, 2003)
Where a Chartered Accountant accepted the audit of a firm without
first communicating with the previous auditor. Held that the
Chartered Accountant is guilty of professional misconduct within
the meaning of the Clause.

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(S.K. Seth of M/s S.K. Seth & Co. vs. K.C. Sapra of M/s K.C. Sapra
& Co. – Page 855 Vol.IX-2A-21(4) of Disciplinary Cases –
Council’s decision dated 16th
to 18th
September, 2003)
Where a Chartered Accountant accepted the position as auditor of
two private limited Companies without first communicating with the
previous auditor. Held that the Chartered Accountant is guilty of
professional misconduct under the Clause.
(Ashok Kumar Agarwal vs. Mohan Rungta – Page 89 Vol.IX-2B-
21(4) of Disciplinary Cases – Council’s decision dated 2nd
to 4th
February, 2004)
The Complainant was the tax auditor of a firm for three financial
years under Section 44 AB of the Income Tax Act, 1961. On
reminding the auditee firm for getting the accounts audited for
subsequent years, the auditee firm informed the Complainant that
the work had been entrusted to another Chartered Accountant and
he had also completed the audit. Thus, the Respondent firm had
not only accepted the said tax audit but also completed the same
without first communicating with the Complainant. Held that the
Chartered Accountant is guilty of professional misconduct under
the Clause.
(S.M. Momaya of M/s S.M. Momaya & Co. vs. Ashok Sharma of
M/s Ashok K. & Co. – Page 199 Vol.IX-2B-21(4) of Disciplinary
Cases – Council’s decision dated 15th
to 17th
April, 2004)
Communication sent through Registered Post without
acknowledgement due-
A member accepted the position of a statutory auditor and sent the
communication to the previous auditor through Registered Post
without Acknowledgement Due. The Council held the member
guilty of professional misconduct under Clause (8) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Ashok K. Aggarwal vs. Yogesh Thakur - Page 89 Vol X-2A-21(4)
of Disciplinary Cases – Council’s decision dated 29th
August, 2005)
Communication sent through some other mode-
Member carried out the tax audit of a firm and sent the
communication through a letter and not by Registered Post
Acknowledgement Due (RPAD). The Council held the member
guilty of professional misconduct under Clause (8) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.

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(S. S. Ajmera Vs. S. R. Ghatge of M/s S. R. Ghatge & Co. - Page
417 Vol.X-2A-21(4) of Disciplinary Cases – Council’s decision
dated 7th
July, 2005)
Member sent the communication through ‘Certificate of Posting’.
The Council held the member guilty of professional misconduct
under Clause (8) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(Vinod Kumar Gupta vs. P. Mehrotra - Page 194 Vol.X-2A-21(4) of
Disciplinary Cases – Council’s decision dated 29TH
August, 2005)
Member sent the communication by ordinary post. The Council
held the member guilty of professional misconduct under Clause
(8) of Part I of the First Schedule read with Sections 21 and 22 of
the Chartered Accountants Act, 1949.
(Mahendra R. Shah vs. Ms. Deepali Dattatraya Dalal - Page 443
Vol.X-2A-21(4) of Disciplinary Cases – Council’s decision dated 6th
October, 2005)
The Council held a member guilty of professional misconduct
under Clause (8) of Part I of First Schedule to the Chartered
Accountants Act, 1949, for not making proper communication to
the previous auditor.
(M/s Sudhir Kumar Jain & Co. vs M/s Sadani & Singhi - Page 505
Vol X-2A-21(4) of Disciplinary Cases – Council’s decision dated 5th
January, 2006)
The Council held the member guilty under Clause (8) of Part I of
First Schedule to the Chartered Accountants Act, 1949, for
accepting Tax Audit of a Company without communicating with the
previous auditors.
(P. K. Saha of M/s P. K. Saha & Associates vs. Amit Roy of M/s
Amit & Associates - Page 291 Vol.X-2A-21(4) of Disciplinary Cases
– Council’s decision dated 29th
August, 2005)
A member accepted the position of tax auditor without
communicating with the previous auditor when the previous auditor
was acting as tax auditor without having appointment letter for the
same. The Council held him guilty of professional misconduct
under Clause (8) of Part I of the First Schedule of the Chartered
Accountants Act, 1949 but not under Notification No. 1 CA
(7)/46/99 dated 28th
October, 1999 as payment of fees outstanding
towards internal audit does not fall the requirement of the
notification.

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(J.R. Shah of M/S. J.R. Shah & Co. vs. Rajiv B. Pethkar of M/S.
Rajiv Pethkar & Associates - Page 380 Vol.X-2A-21(4) of
Disciplinary Cases – Council’s decision dated 29th
August, 2005)
The Complainant’s firm (previous auditor) was appointed as
auditors of a company at its Annual General Meeting and re-
appointed for the subsequent year. In absence of any resignation
from previous auditor or notice for removal and the change of
auditors, the incoming auditor accepted the appointment without
first communicating. The incoming auditor did not verify the
compliance of Section 224 and 225 of the Companies Act, 1956.
The Council held the incoming auditor guilty of professional
misconduct under Clauses (8) and (9) of Part I of First Schedule
read with Sections 21 and 22 of the Chartered Accountants Act,
1949.
(Rajeev Mittal of M/S. Mittal Rajeev & Associates vs. Rajeev Shah
of M/S. Bihani & Shah - Page 454 Vol.X-2A-21(4) of Disciplinary
Cases – Council’s decision dated 6th
Octoberl, 2005)
Where a member accepted the appointment as auditors of a
company without first communicating; and ascertaining the
compliance of requirements of Sections 224 & 225 of the
Companies Act, 1956, the Council held the member guilty of
professional misconduct under clauses (8) and (9) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Ajit Kumar Sur of M/s Agrawal Sur & Associates Vs. Shailendra
Hurkat of M/s Shailendra Hurkat & Co. - Page 484 Vol.X-2A-21(4)
of Disciplinary Cases – Council’s decision dated 5th
January, 2006)
The Complainant-firm was the statutory auditors of a company
since its incorporation and audited and certified the Company’s
Accounts up to 1994. They completed the routine audit of the
Company’s Accounts for the year ending 31st
March, 1995 and the
trial balance along with the schedules and draft accounts was
handed over to the Company for approval of the Board of
Directors. Later, the incoming auditor took up the audit and
certified the accounts for the same year, without communicating
and ascertaining the compliance of provisions of Section 225 of
Companies Act, 1956. The Council held the incoming auditor guilty
of professional misconduct under Clauses (8) and (9) of Part I of
First Schedule to the Chartered Accountants Act, 1949.
(Vinod Somani Vs. M.L. Agarwal - Page 511 Vol.X-2A-21(4) of
Disciplinary Cases – Council’s decision dated 2nd
August, 2006)

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The Complainant conducted the Statutory Audit of a Company and
issued the Auditor’s Report. Subsequently, the Company
conducted its AGM and requested the complainant to conduct
statutory audit for the subsequent year. But, the Respondent-firm
accepted and conducted the statutory audit, without first
communicating with the previous auditor in writing and also without
ascertaining whether the requirements of Section 224 and 225 of
the Companies Act, 1956 have been complied with, and signed the
accounts and audit report (through its partner) without knowledge
of the Complainant. The Council held the incoming auditor guilty of
professional misconduct under Clauses (8) and (9) of Part I of the
First Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Sanjay Kalra of M/S. S. Kalra & Associates vs. B.M. Goel of M/s.
Kapoor Bhushan & Co. - Page 525 Vol.X-2A-21(4) of Disciplinary
Cases – Council’s decision dated 22nd
June, 2006)
A member accepted the position as auditor without first
communicating with the Complainant in writing and without first
ascertaining whether the requirements of Section 225 of
Companies Act, 1956 in respect of which appointment have been
duly complied with. The Council held the member guilty of
professional misconduct under Clauses (8) and (9) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.
(Mahadeb Saha of M/s M. Saha & Co. Vs. A. K. Daga of M/s A. K.
Daga & Associates) Page 436 Vol.X-2A-21(4) of Disciplinary
Cases – Council’s decision dated 7th July, 2005)
Where complainant audited the accounts of six Companies and
seven Trusts up to the year ended 31st
March, 2001 and was re-
appointed as auditors of these Companies in their respective
Annual General Meetings and also as auditors of these Trusts. The
Complainant never tendered any resignation. Later, the
Respondent (incoming auditor) informed the Complainant by letter,
of their appointment as auditors of the above Companies and
Trusts, to which the Complainant endorsed by mentioning their
objection and gave the same to the bearer who brought the letter.
The provisions of Section 225 of the Companies Act, 1956 were
not complied with and the previous auditor’s fee was also
outstanding. The Council held that the incoming auditor guilty of
professional misconduct under Clauses (8) and (9) of Part I of the
First Schedule and also guilty under Notification No. 1-CA(7)/46/99
dated 28th
October, 1999 issued under Clause (ii) of Part II of the

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Second Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Prakash Chand Surana of M/s. Prakash Surana & Associates Vs.
Pratap Singh Surana of M/s. Pratap Singh Surana & Co. - Page
466 Vol.X-2A-21(4) of Disciplinary Cases – Council’s decision
dated 6th
October, 2005)
A Member accepted the position as auditor without first
communicating with the previous auditor. He accepted the
appointment even before the undisputed fees payable to the
Complainant was paid. The compliance with Section 224 and 225
of the Companies Act, 1956 were not complied with by the
Incoming Auditor.
The Council held the incoming auditor:
(a) guilty of professional misconduct falling within the meaning
of Clauses (8) and (9) of Part I of First Schedule to the
Chartered Accountants Act, 1949 and also
(b) guilty within the meaning of Notification No.1-CA(7)/46/99
dated 28th
October, 1999 under Clause (ii) of Part II of
Second Schedule to the Chartered Accountants Act, 1949.
(D.G. Chandak vs. S.D. Chauhan of M/s. S.D. Chauhan & Co.,
Mumbai - Page 492 Vol.X-2A-21(4) of Disciplinary Cases –
Council’s decision dated 5th
January, 2006)
A member omitted to communicate with the previous auditor before
accepting and conducting the audit and also without first
ascertaining whether the requirements of Sections 224 and 225 of
the Companies Act, 1956 were complied with. Also, he accepted
the appointment before the undisputed fees payable to the
previous auditor was duly paid and thus violated the Notification
No.1-CA (7)/46/99 dated 28th
October, 1999.
The Council held him guilty of:
(a) professional misconduct under Clauses (8) and (9) of Part I
of the First Schedule to the Chartered Accountants Act,
1949.
(b) professional misconduct falling within the notification no.1-
CA(7)/46/99 dated 28th
October, 1999 under Clause (ii) of
Part II of Second Schedule to the Chartered Accountants
Act, 1949.
(Prafull R. Gandhi of M/s. P.R. Gandhi & Co Vs. Padam Chand

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Jain of M/s. Padam Chand Jain & Associates - Page 212 Vol.X-2A-
21(4) of Disciplinary Cases – Council’s decision dated 29TH
August,
2005)
A member accepted Tax Audit, without communicating with the
previous auditor. Also, he was negligent while auditing as he was
required to check as to how and by what mode the fees had been
finally paid to the previous auditor, which was earlier appearing
under the list of sundry creditors. He further failed to check the
facts and look into the documentary details before signing the
report. The Council held him guilty of:
(a) professional misconduct under Clause (8) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.
(b) professional misconduct under Clause (7) of Part I of the
Second Schedule to the Chartered Accountants Act, 1949.
(Bhushan Khot of M/s. Bhushan Khot & Co. vs. Mahesh M. Bhatt -
Page 424 Vol.X-2A-21(4) of Disciplinary Cases – Council’s
decision dated 7th
July, 2005)
Where the Complainant's firm was the statutory auditor of a
company and was re-appointed in Annual General Meeting for the
subsequent year, another Chartered Accountant accepted the
statutory audit while the Complainant's firm was already re-
appointed in AGM, without first communicating with the previous
auditor i.e. the Complainant, in writing. Also, the compliance of
provisions of Section 224 and 225 of the Companies Act, 1956 was
not ascertained before accepting the auditorship of the company.
Further, he was also negligent in conduct of professional duties.
The Council held him guilty of:
(a) professional misconduct falling within the meaning of
Clauses (8) and (9) of Part I of the First Schedule to the
Chartered Accountants Act, 1949.
(b) professional misconduct falling within the meaning of Clause
(7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949.
(R.S. Ajmeri of M/s R. Ajmeri Associates vs. Shiv Hari Garg - Page
331 Vol.X-2A-21(4) of Disciplinary Cases – Council’s decision
dated 7th
July, 2005)
A Member without communicating with the previous auditor and
without ascertaining that the undisputed fees payable to the
previous auditor was duly paid, was held by the Council, as guilty

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of:
(a) professional misconduct under Clause (8) of Part I of the
First Schedule to the Chartered Accountants Act, 1949 and
(b) under Notification No.1-CA(7)/46/99 dated 28th
October,
1999 issued under Clause (ii) of Part II of the Second
Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Jugal Kishore Soni of M/s J. K. Soni & Associates vs. Abhijit
Matilal - Page 323 Vol.X-2A-21(4) of Disciplinary Cases – Council’s
decision dated 7th
July, 2006)
A Chartered Accountant accepted appointment as auditor of
Company without communicating with Complainant (previous
auditor) in writing. Respondent was held guilty under Clause (8) of
Part I of First Schedule.
(D. C. Surana of M/s D. C. Surana & Associates v. Ashok L. Gosar
of M/s Gosar Associates (25-CA(224)/2002) - to be published later
under Disciplinary Cases Volume X-2B-21(4). Council decision of
273rd
Meeting held in October, 2007)
A Chartered Accountant accepted tax audit of firm without
communicating with the complainant, who was the previous auditor
in writing. The Respondent accepted the aforesaid assignment
inspite of audit fee remaining outstanding. It was held that the
Chartered Accountant is guilty under clause (8) of Part I of First
Schedule and not under Notification No. 1–CA (7) 46/99 read with
Section 21 & 22 of The Chartered Accountants Act, 1949.
(Har Narayan Rathi v. Deepak Mehta (25-CA(107)/2004). - to be
published later under Disciplinary Cases Volume X-2B-21(4).
Council decision of 277th
Meeting held in March – April 2008)
A Chartered Accountant carried out two audits under Section 44AB
of the Income Tax Act, 1961 without communicating with
Complainant (previous auditor) in writing. Held guilty under Clause
(8) of Part I of First Schedule.
(Suresh K. Agarwal v. Ghan Shyam. Verma (25-CA(37)/2002). - To
be published later under Disciplinary Cases Volume X-2B-21(4).
Council decision of 277th
Meeting held in March–April 2008)
A Chartered Accountant accepted audit of a firm without first
communicating with the Complainant (previous auditor).
Respondent was held guilty under clause (8) of Part I of First
Schedule.

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(Ms. Minakshi Tantia v. Anil Kumar Mandawewala (25-CA(200)/
2002) - to be published later under Disciplinary Cases Volume X-
2B-21(4). Council decision of 278th
Meeting held in May, 2008).
Clause (9): accepts an appointment as auditor of a company without
first ascertaining from it whether the requirements of
Section 225 of the Companies Act, 1956 (1 of 1956), in
respect of such appointment have been duly complied
with;
The Companies Act, 1956 provides for the requirements which an
auditor appointed in respect of a Company should satisfy himself
about, before he accepts the appointment. The relevant provisions are
contained in Sections 224 and 225 of the said Act and the Council has
notified that the provisions to be complied with under Clause (9) are
those contained in Sections 224 and 225 of the Act. Section 224
contains several provisions in the matter of appointment of auditors in
different circumstances and situations whereas Section 225 lays down
the procedure which must be followed whenever a Company desires to
change its auditors. In order that the validity of the appointment of an
auditor is not challenged or objected to by shareholders or the retiring
auditors at a later date, it has been made obligatory on the incoming
auditor to ascertain from the Company that the appropriate procedure
in the matter of appointment has been faithfully followed.
The following guidelines have been issued by the Council for this
purpose:-
1. Clause (9) of Part I of the First Schedule to Chartered Accountants
Act, 1949, provides that a member in practice shall be deemed to be
guilty of professional misconduct if he accepts an appointment as
auditor of a Company without first ascertaining from it whether the
requirements of Sections 224 and 225 of the Companies Act, 1956, in
respect of such appointment have been duly complied with. Under this
clause it is obligatory on the incoming auditor to ascertain from the
Company that the appropriate procedure in the matter of his
appointment has been duly complied with so that no shareholder or
retiring auditor may, at a later date, challenge the validity of such
appointment.
2. A question arises as to what is the duty of the incoming auditor
under this clause and what steps he should take in order to ascertain
whether the Company has complied with the provisions of Sections
224 and 225 of the Companies Act. These guidelines are issued by the
Council in order to assist the members in practice to ensure that the
provisions of clause (9) are duly complied with.

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3. It may be clarified that though clause (9) refers to compliance with
Sections 224 and 225 of the Companies Act, it is also necessary to
ascertain that the provisions of Section 224A are duly complied with by
the Company. This Section deals with special provisions relating to
appointment of auditors by certain Companies and they have
necessarily to be considered by the incoming auditor before he
accepts his assignment.
4. The steps to be taken by an auditor of a Company who is appointed
in the following circumstances are indicated below:
(i) When the auditor appointed is the first auditor of the
Company.
(ii) When the auditor is appointed in place of an existing auditor
who has resigned or has been removed or has ceased to
hold office for any other reason.
(iii) When the auditor or auditors appointed by the Company
were holding this office jointly with others and one or more
of such joint auditors are not reappointed.
(iv) When one or more of the auditors appointed by the
Company was/were not holding this office earlier.
5. The procedure to be followed by a Company for appointment of an
auditor is laid down in Section 224 of the Companies Act, 1956. The
relevant provisions of the Section are summarised in the ensuing sub-
paras.
5.1 The first auditor can be appointed by the Board of Directors within
one month of the date of registration of the Company. The auditor so
appointed will hold office up to the conclusion of the first Annual
General Meeting.
5.2 If the Board of Directors do not make such appointment, the
Company, can make the appointment of first auditor at any General
Meeting.
5.3 The first auditor appointed by the Board of Directors can be
removed at any General Meeting and any other auditor can be
appointed at such meeting if any member gives due notice of such
resolution and such notice, is sent to all the members of the Company
at least fourteen days before the date of the meeting. The notice of
such a resolution will have to be dealt with as provided in Sections
225(2) and 225(3). In this connection, the procedure discussed in
paras 7.4 to 7.7 below will have to be followed before any resolution
for removal of the first auditor is passed at the General Meeting. For

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the removal of the first auditor of a Company approval of the Central
Government as mentioned in para 5.14 below is not necessary.
5.4 Subsequent appointment of the auditor is to be made at each
Annual General Meeting of the Company.
5.5 Before making appointment or reappointment of an auditor, the
Company has to obtain a written certificate from the auditor proposed
to be appointed that such appointment or reappointment will be in
accordance with the limits in respect of maximum number of audits
which he can accept under the provisions of Section 224 (1-B).
5.6 The auditor so appointed will hold his office from the conclusion of
the meeting at which he is appointed to the conclusion of the next
Annual General Meeting.
5.7 The Company has to give intimation of the appointment to the
auditor within seven days of his appointment.
5.8 If the retiring auditor has given a notice in writing of his
unwillingness to be reappointed, the Company can appoint any other
auditor.
5.9 The members of the Company can pass a resolution at the Annual
General Meeting to the effect that the retiring auditor shall not be
reappointed. They can also pass a resolution at that meeting to
appoint some-one else in place of the retiring auditor. Where a notice
has been given of an intended resolution to appoint some other
auditor(s) in the place of a retiring auditor but such a resolution cannot
be proceeded with in view of the fact that the person or persons
proposed to be appointed has incurred an incapacity or disqualification
or has died, the retiring auditor shall not be reappointed. For this
purpose the procedure laid down in Section 225 is to be complied with.
5.10 Except in the circumstances mentioned in 5.8 and 5.9 above, a
retiring auditor shall be reappointed if he is otherwise qualified for such
reappointment.
5.11 If the Company fails to appoint an auditor at the Annual General
Meeting, such appointment will be made by the Central Government.
The Company has to give intimation to the Central Government within
seven days about the fact that no such appointment has been made.
5.12 The Board of Directors, except for the situation covered by 5.13
below, can fill any casual vacancy in the office of the auditor. Until this
appointment is made the remaining auditor, in case there are joint
auditors, can function as auditor of the Company.
5.13 If the casual vacancy is caused by the resignation of an auditor,

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such vacancy can only be filled by the Company in any General
Meeting. The auditor appointed to fill any casual vacancy shall hold
office until the conclusion of the next Annual General Meeting.
5.14 The Company can remove the auditor before the expiry of his
term of office by a resolution passed at any General Meeting and after
obtaining previous approval of the Central Government.
6. Section 224A of the Companies Act lays down the procedure for
appointment of auditor by a Company in which 25% or more of the
subscribed capital is held, whether singly or in combination, by the
following institutions:-
(i) A public financial institution.
(ii) Any financial or other institution established under a State
Act in which the State Government holds 51% or more of
the subscribed share capital.
(iii) Government Company, Central Government or any State
Government.
(iv) A nationalised Bank or an Insurance Company carrying on
general insurance business.
The procedure to be followed by such a Company, in brief, is as
under:
6.1 The appointment or reappointment of auditor at each Annual
General Meeting shall be made by a special resolution.
6.2 If the Company fails to make such appointment or reappointment
of auditor, the Central Government will have to make the appointment
of auditor as provided in Section 224(3).
6.3 The provisions relating to appointment of first auditor, filling of
casual vacancy, removal of auditor etc. which are contained in Section
224 will apply to the Company specified in Section 224A.
7. Section 225 of the Companies Act lays down the procedure for
appointment of auditor other than the retiring auditor and for removal of
existing auditor. The procedure for giving special notice as contained
in Section 225(1) does not apply to the removal of the first auditor
appointed by the Board of Directors, because separate provision as
stated in para 5.3 above is made for this purpose. The procedure to be
followed by the Company, is as under:
7.1 If a member of the Company wants that the retiring auditor should
not be reappointed or that an auditor other than the retiring auditor
should be appointed, he has to give a special notice to the Company

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and specify the resolution which he proposes to move at the Annual
General Meeting for this purpose.
7.2 Such special notice is also required to be given if a member of the
Company wants to remove the auditor before the expiry of his term of
office.
7.3 The special notice should be given at least 14 days before the date
of the General Meeting when the question of appoint- ment or
reappointment of the auditor is to be considered.
7.4 On receipt of the special notice of such a resolution, the Company
has to send a copy of the same to the retiring auditor forthwith.
7.5 The Company is also required to send the special notice to the
members of the Company at least seven days before the Meeting as
per the provisions of Section 190(2) read with Sections 172(2) and
53(1) to 53(4) of the Companies Act. According to these provisions,
the notice should be sent by post or if that is not practicable then it
should be given either by advertisement in a newspaper having an
appropriate circulation or in any other mode allowed by the Articles of
Association of the Company.
7.6 After receipt of the above notice, the retiring auditor can submit his
representation to the members of the Company. Such representation,
on receipt by the Company, is required to be sent to its members as
required under Section 225(3) of the Companies Act.
7.7 The representation received from the retiring auditor will have to be
considered at the General Meeting of the Company before the
resolution proposed by the concerned member is passed. The
resolution proposed by the concerned member can be passed only in
accordance with the provisions of Section 189 of the Companies Act.
8. Under Clause (9) of Part I of the First Schedule to the Chartered
Accountants Act, 1949, the incoming auditor has to ascertain whether
the Company has complied with the provisions of the above sections.
The word "ascertain” means “to find out for certain”. This would mean
that the incoming auditor should find out for certain as to whether the
Company has complied with the provisions of Sections 224, 224A and
225 of the Companies Act. In this respect, it would not be sufficient for
the incoming auditor to accept a certificate from the management of
the Company that the provisions of the above sections have been
complied with. It is necessary for the incoming auditor to verify the
relevant records of the Company and ascertain as to whether the
Company has, in fact, complied with the provisions of the above
sections. If the Company is not willing to allow the incoming auditor to

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verify the relevant records in order to enable him to ascertain as to
whether the provisions of the above sections have been complied with,
the incoming auditor should not accept the audit assignment.
9. It is suggested that the incoming auditor should verify the following
records of the Company:-
9.1 If the appointment of the auditor is being made for the first time
after incorporation of the Company, the auditor should verify as to
whether the Board of Directors have passed the resolution for his
appointment within one month of the date of registration of the
Company.
9.2 If the Board of Directors have not appointed the first auditor but the
appointment is being made by a general meeting of the Company, the
auditor should verify as to whether a proper notice convening the
general meeting has been issued by the Company and whether the
resolution has been validly passed at the general meeting of the
Company.
9.3 If the appointment is being made to fill a casual vacancy, the
incoming auditor should verify as to whether the Board of Directors
have powers to fill the casual vacancy and whether the Board of
Directors have passed the resolution filling the casual vacancy.
9.4 If the vacancy has arisen due to resignation of the auditor, the
incoming auditor should see as to whether a proper resolution filling
the vacancy has been passed at the General Meeting of the Company.
9.5 If the vacancy has arisen as a result of removal of the auditor
before the expiry of his term of office, the incoming auditor should see
that proper resolution has been passed at the General Meeting of the
Company and that the previous approval of the Central Government
has been obtained by the Company.
9.6 If the provisions of Section 224A apply to the Company, the
incoming auditor should verify as to whether a special resolution as
required under the said Section has been duly passed.
9.7 Where the auditor other than the retiring auditor is proposed to be
appointed, the incoming auditor should ascertain whether the
provisions of Section 225 have been complied with. These provisions
equally apply where an auditor who was jointly holding office with
another auditor or auditors and any one or more of such joint auditors
has not been reappointed.
9.8 For the purpose of ascertaining whether the Company has
complied with the provisions of Section 225 of the Companies Act the

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incoming auditor should verify the records of the Company in respect
of the following matters:-
(i) Whether a member of the Company has given special notice
of the resolution as required under Section 225(1) at least
14 days before the date of the general meeting. A true copy
of this notice should be obtained by the incoming auditor.
(ii) Whether this special notice has been sent to all the
members, of the Company as required under Section 190(2)
at least 7 days before the date of the General Meeting.
(iii) Whether this special notice has been sent to the retiring
auditor forthwith as required under Section 225(2).
(iv) Whether the representation received from the retiring auditor
has been sent to the members of the Company as required
under Section 225(3).
(v) Whether the representation received from the retiring auditor
has been considered at the general meeting and the
resolution proposed by the special notice has been properly
passed at the general meeting.
9.9 (A) As regards the mode of sending the notice of the resolution to
the members of the Company as provided in Sections 224 & 225, it
should be noted that there is no provision that the notice should
necessarily be sent by registered post. The notice can be sent by the
Company in accordance with the provisions contained in Section 53.
The relevant provisions of this section can be briefly summarised as
under:
(i) The notice can be sent by ordinary post by preparing and
posting the letter after putting proper address of the person
concerned.
(ii) If the member or the person concerned has given specific
direction to the Company that the notice should be sent to
him under certificate of posting or by registered post, with or
without acknowledgement due, and has deposited with the
Company the sum sufficient to defray the expenses for this
purpose, the notice should be sent in such specified
manner.
(iii) When there are joint holders of shares in a Company, the
notice is to be sent to the joint holder whose name appears
first in the register of members.
(B) If it is not practicable to send the notice of the resolution to the

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members by post, such notice can be given either by advertisement in
a newspaper having an appropriate circulation or in any other mode
allowed by the Articles of Association of the Company.
(C) In order to ascertain whether notice of the resolution has been
sent to the members, the incoming auditor should ascertain whether
there is sufficient evidence with the Company to indicate that the
notice has been sent by any of the modes stated in (A) or (B) above.
The despatch register, postage register, postal certificate (if notice is
sent under postal certificate) or such other satisfactory evidence
available with the Company should be verified.
(D) As regards the mode of sending the notice of the resolution to
the retiring auditor as provided in Sections 224 & 225, attention is
invited to the Department of Company Affairs circular dated
17.10.1981 issued to all Chambers of Commerce, which is reproduced
below:-
“I am directed to say that it has been reported by the Institute of
Chartered Accountants of India that difficulties are being
experienced by retiring Auditors in the operation of the provisions
of Section 225 of the Companies Act, 1956 whenever any
appointment of a new auditor takes place. Such difficulties arise
because of the fact that the copy of the special notice required to
be served u/s 225(2) of the Act on the retiring auditors are not
effectively served and proof of such service is not available. To
obviate such difficulties; therefore, it is advisable that the copy of
the special notice u/s 225(2) of the Act should be sent to the
retiring auditors by Registered A/D post.”
(E) Accordingly, it is necessary for the incoming auditor to satisfy
himself that the notice provided for in Sections 224 & 225 has been
effectively served on the outgoing auditor (e.g. by seeing that the
notice has been duly served through hand delivery or by Regd. Post
with A.D.). Production of a certificate of posting by the Company would
not be adequate for the purpose of the incoming auditor satisfying
himself about compliance with Sections 224/225. Acknowledgement
received from the outgoing auditor would be one of the forms in which
such satisfaction can be obtained.
9.10 A copy of the relevant minutes of the general meeting where the
above resolution is passed duly verified by the Chairman of the
meeting should also be obtained by the incoming auditor for his
records.
10. Sometimes the annual general meeting is adjourned without

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conducting any business or after conducting business in respect of
some of the items on the agenda. The items in respect of which the
business is conducted may or may not include the item relating to
appointment of auditors. Under Section 224(1) the retiring auditor
holds office till the conclusion of the annual general meeting.
Therefore, when the annual general meeting is adjourned in the
circumstances stated above, the retiring auditor will continue to hold
the office of auditor till the adjourned meeting is held and the business
listed in the agenda of the meeting is concluded. In case a new auditor
is appointed at the original meeting (which is adjourned) such auditor
can assume office only after the conclusion of such adjourned
meeting.
10.1 If any annual general meeting is adjourned without appointing an
auditor, no special notice for removal or replacement of the retiring
auditor received after the adjournment can be taken note of and acted
upon by the Company, since in terms of Section 190(1) of the
Companies Act, special notice should be given to the Company at
least fourteen clear days before the meeting in which the subject
matter of the notice is to be considered. The meeting contemplated in
Section 190(1) undoubtedly is the original meeting.
11. If the incoming auditor is satisfied that the Company has complied
with the provisions of Sections 224, 224A and 225 of the Companies
Act, he should first communicate with the outgoing auditor in writing as
provided in Clause (8) of Part I of the First Schedule to the Chartered
Accountants Act, 1949 before accepting the audit assignment.
In order to examine various ethical issues and safeguard the
independence of the Auditors, the Council has set up a Ethical
Standards Board (ESB). This Board examines various issues
concerning professional ethics governing the members of the Institute
which are either raised by the members or are taken up based on their
importance. The recommendations of the Board are forwarded to the
Council for its consideration. This Board is also charged with the
responsibility of looking into the cases of removal and resignation of
auditors and making an appropriate report to the Council. The
following guidelines have been issued for the Board for looking into the
cases of Removal of Auditors:
1. Where an auditor resigns his appointment as an auditor of a
Company or does not offer himself for reappointment as auditor of
such Company, he shall send a communication, in writing, to the
Board of Directors of the Company giving reasons therefor, if he
considers that there are professional reasons connected with his

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resignation or not offering himself for re-appointment which, in his
opinion, should be brought to the notice of the Board of Directors, and
shall send a copy of such communication to the Institute. It shall be
obligatory on the incoming auditor, before accepting appointment, to
obtain a copy of such communication from the Board of Directors and
consider the same before accepting the appointment.
2. Where an auditor, though willing for re-appointment has not been
reappointed, he shall file with the Institute a copy of the statement
which he may have sent to the management of the Company for
circulation among the shareholders. It shall be obligatory on the
incoming auditor before accepting the appointment, to obtain a copy of
such a communication from the Company and consider it, before
accepting the appointment.
3. The Ethical Standards Board, on a review of the communications
referred to in paras (1) and (2), may call for such further information as
it may require from the incoming auditor, the outgoing auditor and the
Company and make a report to the Council in cases where it considers
necessary.
4. The above procedure is also followed in the case of removal of
auditors by the government and other statutory authorities.
As the Members are aware, the Institute has a Ethical Standards
Board (ESB) to examine various issues of
and to address the grievances of unjustified removal of auditors.
For the Mission Statement, Terms of Reference and Procedure to
be followed by the Board for dealing with the cases of Unjustified
Removal of Auditors, see the ‘Appendix - E’
Some decisions of the Council/High Courts on this clause are
given below:-
Failure to ascertain the requirements of Companies Act
re: appointment of auditors.
Where a Board of Directors appointed a Chartered Accountant as
auditor of a Company, the Company having failed to appoint one at
its annual ordinary general meeting and he wrote to the previous
auditor of his appointment and finished the audit on the same date-
Held, the vacancy was not a casual vacancy and as the Chartered
Accountant was under misapprehension as to the true legal
position, he was warned.
(U.C. Majumdar vs. J.N. Saikia - Page 292 of Vol. I of the
Disciplinary Cases and page 93 of August, 1954 issue of the

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Institute’s Journal - Judgement delivered on 20th May, 1954).
Where a Chartered Accountant applied in response to an
advertisement in a newspaper for appointment as auditor and was
appointed by the Directors and failed to communicate with the
previous auditor and ascertain from the Company whether the
requirements of the Companies Act as regards the appointment of
the auditors were duly complied with. - Held the Respondent, was
guilty on both the counts under clauses (8) and (9).
(B.N. Mohan vs. K.C.J. Satyawadi - Page 11 of Vol. II of the
Disciplinary Cases and page 494 of May, 1955 issue of the
Institute’s Journal-Judgement delivered on 10th March, 1955).
A Chartered Accountant accepted the appointment as statutory
auditor of the Company on the basis of resolution of Board of
Directors. There was no compliance with the requirement of
Section 224 of the Companies Act, 1956 which in the present case
required the appointment by the Central Government as the
Company did not make appointment in the general meeting. Held,
that the Chartered Accountant was guilty of professional
misconduct under the Act.
(M.K. Biswas in Re: - Page 979 of Vol.IV of the Disciplinary Cases -
decided on 11th September, 1962).
Acting as Auditor inspite of disqualification under law as
to the indebtedness to the Company
A Chartered Accountant who was indebted to the Company
towards a loan for a sum exceeding Rs. 1000/- taken for the
purchase of a car, in the ordinary course of financing business of
the Company against the hire purchase agreement and thus was
disqualified under Section 226(3) of the Companies Act, 1956 to be
appointed as auditor of the Company, acted as the auditor of the
Company. Held on borrowing loan, he would be deemed to have
vacated his office as auditor but inspite of that he acted as the
auditor of the Company. The Chartered Accountant was guilty of
professional misconduct under the clause. The word ‘indebted’
occurring in Section 226(3) means the obligation to pay.
(Ram Parshad Handa & Hari Krishan Khosla vs. B.K. Choudhury -
Page 1013 of Vol. IV of the Disciplinary Cases - decided on 14th
September, 1968).
A Chartered Accountant accepted the appointment as auditor of
the Company without ascertaining from the Company about the

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compliance with the requirements of Sections 224 and 225 of the
Companies Act, 1956. He had not taken care to see whether a
vacancy existed against which he was appointed, whether the
notice of the extraordinary general meeting at which he was
appointed was given to the previous auditor. - Held he was guilty of
professional misconduct under the clause.
(M. Abdul Rahim vs. L.R.Kamath - Page 264 of Vol. V of the
Disciplinary Cases - decided on 13th and 14th September, 1974).
A Chartered Accountant accepted the appointment as auditor of
the Company without first ascertaining whether the requirement of
the Companies Act, 1956 in respect of such appointment have
been complied with. The Central Government agreed to the
removal of previous auditor and the appointment of the Chartered
Accountant as auditor in his place subject to the approval of the
shareholders in the general meeting. However, the Chartered
Accountant accepted the audit on the basis of the resolution of the
Board of Directors and before the General Meeting ratified of the
resolution of the Board of Directors. - Held he was guilty of
professional misconduct under the clause.
(D.L.Sukhadia in Re: - Page 279 of Vol. V of the Disciplinary cases
- decided on 22nd & 23rd December, 1976).
A Chartered Accountant accepted the appointment as auditor
without first ascertaining from the Company whether the provisions
of Section 225 of the Companies Act, 1956 in respect of such an
appointment have been duly complied with. Special notice received
from one of the shareholders, though sent to outgoing auditor, was
not sent to the members which is one of the important
requirements of Section 225. - Held Chartered Accountant was
guilty of professional misconduct under the clause.
(M.R. Gulati vs. S.C. Chirania - Page 317 of Vol. V of the
Disciplinary Cases - decided on 26th, 27th and 28th October,
1978).
A member had accepted appointment as auditor of a Company
without ascertaining from the Company whether the requirements
of Sections 224 and 225 of the Companies Act had been complied
with. However, he realised this defect only after acceptance. It was
held that the member had not taken care to see if he had been
properly appointed as he had:
(i) accepted the appointment the very next day
(ii) satisfied himself on the basis of “No objection certificate”

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from the previous auditor but without going through the
Directors report, Minutes Book or any other documents.
It was observed that if he had taken care to go through this
exercise before accepting the appointment, he could have satisfied
himself whether or not the provisions of Sections 224 and 225 had
been complied with. The member was found guilty in terms of this
Clause.
(Y.S. Muzumdar & Co. vs. H.S. Sardeshpande - Page 116 of Vol.
VI(2) of Disciplinary Cases - Decided on 11th, 12th, 13th February,
1988).
A member had been appointed the first auditor of a Company
within 30 days of the incorporation as required by Section 224(5) of
the Companies Act. Later another member was appointed as the
joint auditor nearly after 8 months of the incorporation of the
Company, by a resolution of the Board of Directors. It was found
that the appointment of the second member was not valid in terms
of Section 224(5) of the Companies Act. It was also found that the
second member did not ascertain whether there was compliance
with the provisions of Sections 224(5) and 225 of the Companies
Act. The second member was therefore found guilty in terms of this
Clause. It was also found that Respondent had not communicated
with the complainant as required by Clause (8) and in so far as he
had not done so, he was guilty.
(C.L. Tomson vs. K.A. Chandrasekhara Menon - Page 357 of Vol.
VI(2) of Disciplinary Cases - Decided on 18th, 19th and 20th
December, 1989)
A member who was appointed as auditor of a Company failed to
ascertain first from the Company whether the requirements of
Sections 224 and 225 of the Companies Act, 1956, have been duly
complied with. He also, did not communicate with previous auditor
before accepting the auditor. Therefore, the member was found
guilty in terms of Clauses (8) and (9).
(B.B. Shah vs. N.K. Nagarkar - Page 380 of Vol. VI(2) of
Disciplinary Cases - Decided on 18th, 19th and 20th December,
1989)
Where a Chartered Accountant had accepted the appointment as
auditor of a Company without ascertaining from the Company
whether the provisions of Sections 224 & 225 of the Companies
Act were complied with in respect of his appointment and he had
accepted the position as auditor of the Company without

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communicating with the previous auditors in writing and without
waiting for a reasonable time for a reply from the said auditors
whether they had no professional objection in his accepting the
appointment. Held by the Council and the High Court that the
member was guilty under clauses (8) & (9) of Part I of the First
Schedule.
(P.P. Sangani in Re: - Page 356 of Vol.VII(2) of Disciplinary Cases
– Council’s decision at 7th to 9th March, 1991 - Judgement dated
10th August, 1994)
A Chartered Accountant had accepted the appointment as auditor
of a private limited Company without communicating with the
previous auditor. He accepted the audit and surprisingly completed
the audit on the same day and signed the balance sheet on the
very next day. He did not ensure that the client Company had
complied with the provisions of Section 225, or 224(6) of the
Companies Act, 1956, in changing its auditor. He was held guilty
under Clauses (8) & (9)
(S.I. Majumdar vs. Vinod Rana - Page 484 of Vol VII(2) of
Disciplinary Cases – Council’s decision dated 5th to 6th December
1996).
A Chartered Accountant accepted the position as auditor of a
private limited Company for a year which was previously and
continuously held by the Complainant without communicating with
him in writing. He had accepted the appointment as auditor of the
above Company without ascertaining whether the requirements of
Sections 224 and 225 of the Companies Act, 1956 had been
complied with. It was also charged against him that while accepting
the said appointment, he had been grossly negligent in the conduct
of his professional duties. The Council found that this charge had
been misconstrued by the Complainant. This clause would apply
only where it is found that the auditor has been negligent in the
conduct of his professional duties while discharging his obligations
as an auditor and the same would not be applicable in the matter
of failure to communicate with the previous auditor or failure to
ascertain compliance with Sections 224 and 225 of the Companies
Act, 1956 which are covered by different Clauses of the Schedule
to the Act. The Complainant had not brought out any material to
establish the charge of gross negligence. Therefore, he was held
guilty under Clauses (8) and (9). The charge of gross negligence in
the conduct of professional duties was not established.
(V.K. Gupta vs. Rajiv Savara - Page 517 of Vol. VII(2) of

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Disciplinary Cases – Council’s decision dated 5th to 6th December,
1996).
A Chartered Accountant had accepted the appointment as auditor
of a Company without first ascertaining whether the requirements
of Section 225 of the Companies Act, 1956 had been duly
complied with. Neither the notice for original annual general
meeting nor the notice for adjourned annual general meeting was
received by the Complainant and even the purported special notice
under Section 190(1) for removal/ replacement of the
Complainant’s firm was received by the Company after the original
Annual General Meeting was adjourned without appointing an
auditor.
As per Code of Conduct, adjourned meeting is in continuation of
the original meeting. The Company cannot act on the special
notice received by it in between the period of original meeting and
the adjourned meeting. The Company had not received special
notice before 14 days of the original meeting. It was held that he
had not properly verified the procedure to be followed under
Sections 224 and 225 of the Companies Act, 1956 and hence was
guilty under Clause (9).
(V.K. Dhingra vs. Satish Tandon - Page 541 of Vol. VII(2) of the
Disciplinary Cases – Council’s decision dated 5th to 6th December,
1996).
The Respondent by letter dated 19th January, 1987 had informed
the Complainant that at the adjourned General Meeting of a
Company held on 28th February, 1986, he had been appointed as
statutory auditor of the Company for the year ended 31st
December, 1985. The Complainant had received the notice for
holding the Annual General Meeting of the said Company which
was fixed for 28th September, 1985. The meeting was adjourned
and the adjourned Annual General Meeting was held on 28th
February, 1986. The Complainant had received the notice for the
adjourned Annual General Meeting also. In both the notices, there
was no mention of any proposed change in the auditors of the
Company for the year ended 31st December, 1985. In response to
the Respondent’s letter dated 19th January, 1987, the Complainant
informed the Respondent about his continuance as Statutory
auditor because neither he had resigned nor the Company had
issued any notice for the intended change. The Respondent was
held guilty of violation of Clauses (8) & (9). The Council felt that in
view of the facts and circumstances of the case, and the repentant

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attitude of the Respondent, there was insufficient justification for
imposing any penalty on him.
(T. Ravindra vs. K.F. Jetsey - Page 762 of Vol. VII(2) of
Disciplinary Cases – Council’s decision dated 8th to 10th
December, 1997).
Where a Chartered Accountant accepted the appointment as
auditor without first communicating with the previous auditor and
without first ascertaining from the Company whether the
requirement of Sections 224 & 225 of the Companies Act, 1956
had been duly complied with. Held that he was guilty under
Clauses (8) & (9).
(Lalit K. Gupta of M/s Lalit K. Gupta & Co. vs. Ajay Bansal – Page
145 of Vol.VIII (2) of Disciplinary Cases – Council’s decision dated
1st to 3rd August, 2001)
Where a Chartered Accountant accepted audit of three Companies
without first communicating in writing with the previous auditor. He
also accepted the audit without ascertaining whether the provisions
of Section 225 of the Companies Act, 1956 had been complied
with. Held that he was guilty of professional misconduct under
Clauses (8) & (9).
(J.R. Kakadiya vs. M.S. Chokshi – Page 179 of Vol. VIII (2) of
Disciplinary Cases – Decision of the Council dated 1st to 3rd
August, 2001)
Where a Chartered Accountant accepted the position as auditor
without first ascertaining from the Company as to whether the
provisions of Section 224 (7) of the Companies Act were complied
with and without first communicating with the previous auditor of
the Company. Held that he was inter alia guilty of professional
misconduct under Clauses (8) & (9) of Part I of the First Schedule
to the Chartered Accountants Act, 1949.
(M/s Jha & Associates vs. S. Dhar - Page 466 of Vol. VIII (2) of
Disciplinary Cases – Council’s decision dated 6th to 8th December,
2001)
A Chartered Accountant accepted statutory audit of a private
limited Company without first ascertaining from the Company
whether the requirements of Section 225 of the Companies Act,
1956 in respect of such appointment, have been duly complied
with. He also accepted the audit of the Company without making
any communication with the previous auditor and completed and
signed the audit report. Held that he was inter alia guilty of

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professional misconduct under the Clauses (8) and (9).
(M.K. Banerjee of M/s M. Banerjee & Company vs. Bhaskar Maitra
- Page 83 of Vol. IX-2A – 21(4) of Disciplinary Cases – Council’s
decision dated 11th
September, 2002)
While the audit was pending, the complainant came to know that
the Respondent had signed the accounts of the Company for the
two years. The Respondent never communicated with that
complainant. The complainant had never resigned from the
Auditorship of the Company. No notice for the complainant’s
removal was sent by the Company. The provision of the Section
225 of the Companies Act, 1956 were not complied with properly
by the Company and all this was ignored by the Respondent. Held
that the Respondent was guilty of professional misconduct within
the meaning of Clauses (8) & (9) of the Part I of the First Schedule
of the Chartered Accountants Act, 1949.
(J.P. Gupta vs. Charanjit Malhotra - Page 113 of Vol. IX-2A – 21(4)
of Disciplinary Cases – Council’s decision dated 11th to 13th
November, 2002)
The Respondent accepted the position of auditor of private limited
Company without first communicating with the previous auditor.
The Respondent had also accepted the appointment as auditor
without first ascertaining from the Company as to whether the
requirement of Section 224 & 225 of the Companies Act, 1956 in
respect of such appointment have been duly complied with. Held
that he was guilty of professional misconduct under the Clause (8)
& (9) of the Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(R.L.P. Sinha of M/s R.L.P. Sinha & Associates vs. A.K. Manglik -
Page 126 of Vol. IX-2A – 21(4) of of Disciplinary Cases – Council’s
decision dated 11th to 13th November, 2002)
Even while another C.A. Firm was doing audit of a Company and
raised audit queries, the Respondent on being approached by the
Company accepted the position of statutory auditor. The
Respondent communicated with the previous auditor after already
signing the balance sheet. He did not bother to examine whether
the provisions of Section 224 and 225 have been duly complied
with. Held that he was inter alia guilty of professional misconduct
under Clause (8) & (9) of the First Schedule of the Chartered
Accountants Act, 1949.
(S.P. Khemka vs. T.G. Ramanathan – Page 387 of Vol. IX-2A –

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21(4) of Disciplinary Cases – Council’s decision dated 26th to 28th
December, 2002)
Where the Respondent omitted to communicate with the previous
auditor before accepting the audit of private limited Company and
also without first ascertaining whether requirements of Section 224,
225 & 226 of the Companies Act, 1956 were complied with. Held
that he was guilty of professional misconduct under Clause (8) &
(9) of Part I of the First Schedule of the Chartered Accountants Act,
1949.
(V.K. Wadhwa vs. G.P. Makkar – Page 451 of Vol. IX-2A – 21(4) of
Disciplinary Cases – Council’s decision dated 26th to 28th
December, 2002)
The Complainant was the statutory auditor/tax auditor of five
Companies/firms and part audit was done for two entities. The
Complainant sent four letters to the management for
commencement of remaining period/remaining firms. The
complainant was then informed by the management that the audit
statement had been already issued by the Respondent firms.
Neither the firms/Companies had sent any prior information/board/
AGM resolution regarding the change of auditor nor the
Respondent had sent any intimation regarding the acceptance of
audit. Held that he was guilty of professional misconduct under
Clause (8) and (9) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(Sunil Kashyap of M/s P.C. Bafna & Co. vs. Deepak Batra – Page
435 of Vol. IX-2A – 21(4) of Disciplinary Cases – Council’s decision
dated 26th to 28th December 2002)
The Complainant was appointed statutory auditor of a private
limited Company but the Company did not get their accounts
audited by the Complainant. Later the Company produced a
Balance Sheet and Profit and Loss Account before the complainant
for statutory audit and report prepared by the Respondent’s firm in
the capacity as an internal auditor without any books of account,
which the complainant refused to do. The Respondent was
appointed as internal auditor, then as branch auditor and finally as
statutory auditor without any knowledge of the complainant. The
Respondent signed the unaudited financial statement as the
statutory auditor and the same was filed with the Registrar of
Companies under section 220 of the Companies Act, 1956. Held
that the Chartered Accountant is guilty of professional misconduct

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within the meaning of Clauses (8) & (9) of Part I of First Schedule
to the Chartered Accountants Act, 1949.
(Phool Chand Gupta vs. Parshu Ram Bhagat – Page 671 of Vol.
IX-2A – 21(4) of Disciplinary Cases – Council’s decision dated 16th
to 18th September, 2003)
A member accepted the audit without ascertaining the compliance
of Section 225 of the Companies Act, 1956. The Previous auditor
did not receive any communication from the said company
regarding convening of Extra Ordinary General Meeting and his
removal as statutory auditor. Also, by accepting the audit before
the undisputed fees payable to the previous auditor was duly paid,
the member violated the Notification No.1-CA (7)/46/99 dated 28th
October, 1999. The Council held him guilty of:
(a) professional misconduct under Clause (9) of Part I of the
First Schedule to the Chartered Accountants Act, 1949,
(b) guilty of professional misconduct under Clause (ii) of Part II
of the Second Schedule to the Chartered Accountants Act,
1949.
(Dilip J. Kitawat vs. Sunil P. Shah - Page 361 of Vol. X-2A – 21(4)
of Disciplinary Cases – Council’s decision dated 26th
May, 2005)
The Complainant's firm was the statutory auditor of a company and
was re-appointed in Annual General Meeting for the subsequent
year. A member accepted the statutory audit of a Company while
the Complainant's firm was already re-appointed in AGM, without
first communicating with the previous auditor i.e. the Complainant,
in writing. Also, the compliance of provisions of Section 224 and
225 of the Companies Act, 1956 was not ascertained before
accepting the auditorship of the company.
Also, he accepted the position as auditor previously held by the
complainant by under cutting thereby resulting in contravention of
clause (12) of Part-I of the First Schedule to the Chartered
Accountants Act, 1949 (now repealed vide CA Amendment Act,
2006). Further, he was also negligent in conduct of professional
duties. The Council held him guilty of:
(a) professional misconduct falling within the meaning of
Clauses (8), (9) and (12) of Part I of the First Schedule to
the Chartered Accountants Act, 1949.

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(b) professional misconduct falling within the meaning of Clause
(7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949.
(R.S. Ajmeri of M/s R. Ajmeri Associates vs. Shiv Hari Garg - Page
331 of Vol. X-2A – 21(4) of Disciplinary Cases – Council’s decision
dated 7th
July, 2005)
A member omitted to communicate with the previous auditor before
accepting and conducting the audit and also without first
ascertaining whether the requirements of Sections 224 and 225 of
the Companies Act, 1956 were complied with. Also, he accepted
the appointment before the undisputed fees payable to the
previous auditor was duly paid and thus violated the Notification
No.1-CA (7)/46/99 dated 28th October, 1999.
The Council held the him guilty of:
(a) professional misconduct under Clauses (8) and (9) of Part I
of the First Schedule to the Chartered Accountants Act,
1949.
(b) professional misconduct falling within the notification no.1-
CA(7)/46/99 dated 28th October, 1999 under Clause (ii) of
Part II of Second Schedule to the Chartered Accountants
Act, 1949.
(Prafull R. Gandhi of M/s. P.R. Gandhi & Co Vs. Padam Chand
Jain of M/s. Padam Chand Jain & Associates - Page 212 of Vol. X-
2A – 21(4) of Disciplinary Cases – Council’s decision dated 29th
August, 2005)
Wherein the complainant’s firm was appointed as auditors of a
company at its Annual General Meeting and re-appointed for the
subsequent year, in absence of any resignation from previous
auditor or notice for removal and the change of auditors, the
incoming auditor accepted the appointment without first
communicating. The incoming auditor did not verify the compliance
of Section 224 and 225 of the Companies Act, 1956. The Council
held the incoming auditor guilty of professional misconduct under
Clauses (8) and (9) of Part I of First Schedule read with Sections
21 and 22 of the Chartered Accountants Act, 1949.
(Rajeev Mittal of M/s. Mittal Rajeev & Associates vs. Rajeev Shah
of M/s. Bihani & Shah - Page 454 of Vol. X-2A–21(4) of
Disciplinary Cases – Council’s decision dated 6th October, 2005)
The Complainant audited the accounts of six Companies and

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seven Trusts up to the year ended 31st March, 2001 and was re-
appointed as auditors of these Companies in their respective
Annual General Meetings and also as auditors of these Trusts. The
Complainant never tendered any resignation. Later, the
Respondent (incoming auditor) informed the Complainant by letter,
of their appointment as auditors of the above Companies and
Trusts, to which the Complainant endorsed by mentioning their
objection and gave the same to the bearer who brought the letter.
The provisions of Section 225 of the Companies Act, 1956 were
not complied with and the previous auditor’s fee was also
outstanding. The Council held that the incoming auditor guilty of
professional misconduct under Clauses (8) and (9) of Part I of the
First Schedule and also guilty under Notification No. 1-CA(7)/46/99
dated 28th October, 1999 issued under Clause (ii) of Part II of the
Second Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Prakash Chand Surana of M/s. Prakash Surana & Associates Vs.
Pratap Singh Surana of M/s. Pratap Singh Surana & Co. - Page
466 of Vol. X-2A – 21(4) of Disciplinary Cases – Council’s decision
dated 6th
October, 2005)
Where a member accepted the appointment as auditors of a
company without first communicating; and ascertaining the
compliance of requirements of Sections 224 & 225 of the
Companies Act, 1956, the Council held the member guilty of
professional misconduct under clauses (8) and (9) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Ajit Kumar Sur of M/s Agrawal Sur & Associates Vs. Shailendra
Hurkat of M/s Shailendra Hurkat & Co. - Page 484 of Vol. X-2A –
21(4) of Disciplinary Cases – Council’s decision dated 5th
January,
2006)
Member accepted the position as auditor without first
communicating with the previous auditor. He accepted the
appointment even before the undisputed fees payable to the
Complainant was paid.The compliance with Section 224 and 225
of the Companies Act, 1956 were not complied with by the
Incoming Auditor.
The Council held the incoming auditor:
(a) guilty of professional misconduct falling within the meaning
of Clauses (8) and (9) of Part I of First Schedule to the
Chartered Accountants Act, 1949 and also

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(b) guilty within the meaning of Notification No.1-CA(7)/46/99
dated 28th October, 1999 under Clause (ii) of Part II of
Second Schedule to the Chartered Accountants Act, 1949.
(D.G. Chandak vs. S.D. Chauhan of M/s. S.D. Chauhan & Co.,
Mumbai - Page 492 of Vol. X-2A – 21(4) of Disciplinary Cases –
Council’s decision dated 5th
January, 2006)
The Complainant conducted the Statutory Audit of a Company and
issued the Auditor’s Report. Subsequently, the Company
conducted its AGM and requested the complainant to conduct
statutory audit for the subsequent year. But, the Respondent-firm
accepted and conducted the statutory audit, without first
communicating with the previous auditor in writing and also without
ascertaining whether the requirements of Section 224 and 225 of
the Companies Act, 1956 have been complied with, and signed the
accounts and audit report (through its partner) without knowledge
of the Complainant. The Council held the incoming auditor guilty of
professional misconduct under Clauses (8) and (9) of Part I of the
First Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Sanjay Kalra of M/s. S. Kalra & Associates vs. B.M. Goel of M/s.
Kapoor Bhushan & Co. - Page 525 of Vol. X-2A – 21(4) of
Disciplinary Cases – Council’s decision dated 22nd
June, 2006)
The Complainant-firm was the statutory auditors of a company
since its incorporation and audited and certified the Company’s
Accounts up to 1994. They completed the routine audit of the
Company’s Accounts for the year ending 31st March, 1995 and the
trial balance along with the schedules and draft accounts was
handed over to the Company for approval of the Board of
Directors. Later, the incoming auditor took up the audit and
certified the accounts for the same year, without communicating
and ascertaining the compliance of provisions of Section 225 of
Companies Act, 1956. The Council held the incoming auditor guilty
of professional misconduct under Clauses (8) and (9) of Part I of
First Schedule to the Chartered Accountants Act, 1949.
(Vinod Somani Vs. M.L. Agarwal - Page 511 of Vol. X-2A – 21(4) of
Disciplinary Cases – Council’s decision dated 2nd
August, 2006)
The Chartered Accountant was alleged to have accepted position
of auditor of Company, whereas the Complainant (previous
auditor) had not resigned nor had been removed. The Respondent
accepted the statutory audit of Company without first

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communicating with the Complainant who was the previous auditor
of the Company. The Respondent did not ensure the compliance of
requirement of Section 224/225 of the Companies Act, 1956 before
accepting appointment as auditor of the Company. Held the
Chartered Accountant is guilty under Clauses (8) & (9) of Part I of
First Schedule.
(T. S. Kakkar & Co. v. Vipul N. Chauhan of M/s D. Kothary & Co. -
to be published later under Disciplinary Cases Volume X-2B–21(4).
Council decision of 277th
Meeting held in March – April 2008)
A Chartered Accountants firm accepted the appointment of seven
companies and completed the audit of accounts, without
ascertaining whether the requirements of Section 224 of the
Companies Act, 1956 in respect of such appointment have been
duly complied with. No communication made with previous auditor
in writing. Extensive canvassing was done. Respondent held guilty
under clauses (8) & (9) of Part I of First Schedule.
(Brijesh C. Parikh of M/s Brijesh C. Parikh Co. v. Anil A. Shah &
Co. (25-CA(57)/2000). - to be published later under Disciplinary
Cases Volume X-2B–21(4). Council decision of 278th
Meeting held
in May, 2008)
Clause (10): charges or offers to charge, accepts or offers to accept in
respect of any professional employment, fees which are
based on a percentage of profits or which are contingent
upon the findings, or results of such employment, except
as permitted under any regulation made under this Act;
What distinguishes a profession from a business is that
professional service is not rendered with the sole purpose of a profit
motive. Personal gain is one but not the main or the only objective.
Professional opinion, therefore, frowns upon methods where payment
is made to depend on the basis of results. It is obvious that a person
who is to receive payment in direct proportion to the benefit received
by his client, may be tempted to exaggerate the advantage of his
service or may adopt means which are not ethical. It will have the
effect of undermining his integrity and impairing his independence.
Therefore, the members are prohibited from charging or accepting any
remuneration based on a percentage of the profits or on the happening
of a particular contingency such as, the successful outcome of an
appeal in revenue proceedings.
Professional services should not be offered or rendered under an
arrangement whereby no fee will be charged unless a specified finding

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or result is obtained or where the fee is otherwise contingent upon the
findings or results of such services. However, fee should not be
regarded as being contingent if fixed by a Court or other public
authority.
The Council of the Institute has however framed Regulation 192
which exempts members from the operation of this Clause in certain
professional services. The said Regulation 192 is reproduced below:-
192. Restriction on fees
No Chartered Accountant in practice shall charge or offer to
charge, accept or offer to accept, in respect of any professional work,
fees which are based on a percentage of profits, or which are
contingent upon the findings, or results of such work:
Provided that:
(a) in the case of a receiver or a liquidator, the fees may be
based on a percentage of the realisation or disbursement of
the assets;
(b) in the case of an auditor of a co-operative society, the fees
may be based on a percentage of the paid up capital or the
working capital or the gross or net income or profits; and
(c) in the case of a valuer for the purposes of direct taxes and
duties, the fees may be based on a percentage of the value
of the property valued.
The decision of the High Court on this clause is given below:
Where a Chartered Accountant had charged fees at certain
percentage of the expected relief - Held, he was guilty of the
charges.
(R.B. Basu vs. P.K. Mukherji - Page 137 of Vol.III of the
Disciplinary Cases and pages 184-194 of October, 1956 issue of
the Institute’s Journal - Judgement delivered on 17th July, 1956).
Clause (11): engages in any business or occupation other than the
profession of chartered accountants unless permitted by
the Council so to engage:
Provided that nothing contained herein shall disentitle a
chartered accountant from being a director of a
Company, (not being a managing director or a whole time
director), unless he or any of his partners is interested in
such company as an auditor;

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This is a provision introduced to restrain a member in practice from
engaging himself in any business or occupation other than that of
Chartered Accountant except when permitted by the Council to be so
engaged. The objective is to restrain members from carrying on any
other business in conjunction with the profession of accountancy and
combining such work with any business which is not in keeping with
the dignity of the profession. Another reason for the introduction of
such prohibition is that a Chartered Accountant, if permitted to enter
into all kinds of business, would be able to advertise for his other
business and thereby secure an unfair advantage in his professional
practice.
The Council, on a very careful consideration of the matter, has
formulated Regulations 190A & 191 which are reproduced below,
specifying the activities with which a member in practice can associate
himself with or without the permission of the Council.
190A. Chartered Accountant in practice not to
engage in any other business or occupation
A Chartered Accountant in practice shall not engage in any
business or occupation other than the profession of accountancy,
except with the permission granted in accordance with a resolution of
the Council.
Please refer to Appendix (9) of the Chartered Accountants
Regulations, 1988, (see Appendix-‘F’).
191. Part-time employments a Chartered
Accountant in practice may accept
Notwithstanding anything contained in Regulation 190A but subject
to the control of the Council, a Chartered Accountant in practice may
act as a liquidator, trustee, executor, administrator, arbitrator, receiver,
adviser or representative for costing, financial or taxation matter, or
may take up an appointment that may be made by the Central
Government or a State Government or a court of law or any other legal
authority or may act as a Secretary in his professional capacity,
provided his employment is not on a salary-cum-full-time basis.
The Council has considered the question of permitting members in
practice to become a Director, Managing Director, full time/Executive
Director etc. and related issues and the following decisions have been
taken:-
As regards the question of permitting a member in practice to be a
Director, Promoter/Promoter- Director, Subscriber to the Memorandum

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and Articles of Association of any Company, it was decided that:
(a) Director of a Company
(i) The expression “Director Simplicitor” means an
ordinary/simple Director.
(ii) A member in practice is permitted generally to be a Director
Simplicitor in any Company including a board-managed
Company and as such he is not required to obtain any
specific permission of the Council in this behalf unless he or
any of his partners is interested in such Company as an
auditor, irrespective of whether he and/or his relatives hold
substantial interest in that Company.
(b) Promoter/Promoter-Director
There is no bar for a member to be a promotor/signatory to the
Memorandum and Articles of Association of any Company. There is
also no bar for such a promoter/signatory to be a Director Simplicitor of
that Company irrespective of whether the objects of the Company
include areas which fall within the scope of the profession of Chartered
Accountants. Therefore members are not required to obtain specific
permission of the Council in such cases. It must be clarified that under
Section 25 of the Chartered Accountants Act, no Company can
practise as a Chartered Accountant.
Item Nos. 4 of the Specific Resolution would be equally applicable
to member carrying out the activities referred to therein in his capacity
as Karta/representative of HUF provided he is not actively engaged in
carrying on such activities.
The decisions of the Council/High Courts on this clause are given
below.
A Chartered Accountant engaged himself in carrying on a business
known as Shivaji Engineering Works. Held he was guilty of
professional misconduct under the clause.
(D.S. Sadri vs. B.M. Pithawalla - Page 300 of Vol.V of the
Disciplinary Cases - decided on 14th, 15th, 16th & 17th
September, 1977).
A Chartered Accountant in practice entered into partnership with
persons who were not the members of the Institute, for the purpose
of carrying on business. The share of the Chartered Accountant in
the profit and losses was 25%. He was to take part in the business
and was entitled to represent the firm before Govt. authorities etc.

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He was operating the Bank account of the firm, was receiving
moneys from the customers and was also looking after the affairs
of the partnership - Held he was guilty of professional misconduct
under the clause, as he was engaged in the business, without the
permission of the Council.
(K.S. Dugar in Re: - Page 1 of Vol. VI(2) of the Disciplinary Cases -
decided on 2nd, 3rd and 4th April 1980).
A member in practice was authorised by a resolution of the Board
of directors of a Company held on 4.9.81 to look after the day to
day affairs of the Company and other Directors were requested to
give maximum co-operation to him. Also the member held more
than 51% of the shares of the said Company. Later on 8.5.82, he
applied to the Council for permission to hold the office of the
Executive Chairman of the said Company. It was held on the basis
of facts and circumstances of the case that during the period
4.9.81 to 8.5.82 the member had engaged himself in “other
occupation” without the permission of the Council and was found
guilty in terms of this Clause.
(M.K. Abrol and S.S. Bawa vs. V.P. Vijh - Page 256 of Vol. VI(2) of
Disciplinary Cases - Decided on 11th, 12th and 13th February,
1988)
A member having a certificate of practice and having 2 Articled
Clerks with him was simultaneously working as a Financial
Controller of a Company without the permission of the Council. He
was held to be guilty in terms of this Clause in so far as he was
engaged in other occupation without the permission of the Council.
(S.K. Kaul vs. S.C. Mangal - Page 132 of Vol. VI(2) of Disciplinary
Cases - Decided on 9th and 10th August, 1988)
A member as a Karta of his Hindu Undivided Family entered into
partnership business for a short period with non-Chartered
Accountants for engaging in business other than the profession of
Chartered Accountants, without prior permission of the Council.
Therefore, he was found guilty in terms of clauses (4) and (11).
(R.D. Bhatt vs. K.B. Parikh - Page 191 of Vol. VI(2) of Disciplinary
Cases - Decided on 15th, 16th and 17th December, 1988)
The Bombay High Court in WP No. 4906 of 1985 decided on 9th
February, 1989 has held that the prohibition to enter into any
partnership with any person other than a Chartered Accountant
under Clause (4) of Part I of the First Schedule is absolute but not
so under Clause (11). According to the Court, Clause (11) enables

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the Chartered Accountant to engage in any business or any
occupation other than the profession of Chartered Accountancy
provided the Council grants permission to engage in such business
or occupation. According to the Court, it is obvious that the Council
desired to retain the power to permit a Chartered Accountant to
engage in any business or occupation which may be incidental or
would be useful for carrying on the profession of chartered
accountancy. Regulation 166 reiterates what Clause (11) provides.
In pursuance of Regulation 166, the Council of the Institute has
resolved that permission would be granted to the Chartered
Accountants engaged in any business or occupation other than the
profession of chartered accountancy in the cases set out in the
resolution (Appendix 9). Clause (4) and (11) contemplate two
distinct and separate contingencies and Clause (4) cannot be so
read as to make Clause (11) and the power retained by the Council
to grant permission redundant.
(Nalin S. Sualy vs. Institute of Chartered Accountants of India -
Bombay High Court WP No. 4906 of 1985 dated 9th February,
1989)
While dealing with the reasonableness of Clause (11), the
Allahabad High Court in CWP No. 1823 of 1988 has decided on
10th July, 1990 that it is always open to place reasonable
restriction or to regulate any professional activity. Such restrictions
are not new; they are to be found in many fields where it is
provided that a person practising any particular profession shall not
be engaged in any other business. According to the Court, it may
be necessary to have such regulatory provision so that proper and
undivided attention of the person practising a profession is
available to those to whom they are supposed to render their
services. Such professional services should be available to the
needy with full and proper care and attention. The profession also
requires to maintain certain standard of efficiency which it may not
be possible to acquire if a person has his interest somewhere else.
(Iqbal Hamid vs. Institute of Chartered Accountants of India -
Allahabad High Court - W.P. No. 1823 of 1988 dated 10th July,
1990)
Where a Chartered Accountant had not disclosed to the Institute at
any time about his engagement as a proprietor of a non-Chartered
Accountant’s firm while holding certificate of practice and had not
furnished particulars of his engagement as a Director of a
Company despite various letters of the Institute which remained

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unreplied. Held that he was guilty under clause (11) of Part I and
clauses (1) and (3) of Part III of the First Schedule.
(P.S. Rao in Re: - Page 110 of Vol. VII(2) of the Disciplinary Cases
– Council’s decision dated 9th to 11th April, 1992).
Where a Chartered Accountant was Karta of the HUF and was
engaged in the business of a firm without permission of the
Council. Held that he was guilty of professional misconduct under
the Clause.
(V. Krishnamoorthy vs. T.T. Krishnaswami - Page 192 of Vol.VII(2)
of Disciplinary Cases – Council’s decision dated 27th to 29th
September, 1992).
Where a Chartered Accountant had already held employment with
a Company without prior permission of the Institute as required
under the Regulations. Held that he was guilty under the clause.
(R.K. Jain in Re: - Page 252 of Vol.VII(2) of the Disciplinary Cases
– Council’s decision dated 10th to 12th June, 1993).
Where a Chartered Accountant had held a salaried employment as
Assistant Manager (Finance & Accounts) in addition to the practice
of chartered accountancy without obtaining permission of the
Institute as required under Regulations. Held he was guilty held
under the clause.
(Anil Kumar in Re: - Page 330 of Vol.VII(2) of Disciplinary Cases –
Council’s decision dated 16th to 18th January, 1994)
Where a Chartered Accountant had offered to help the
Complainant in disposing of odd lot shareholding, sold the shares
of the Complainant at much lower rates than the prevailing market
rates, had sent to the Complainant contract notes etc. and the said
Chartered Accountant was personally involved in the share
transfers and broker’s business besides his professional activities.
Held that he was guilty under the clause.
(Pradeep R. Ghatge vs. Ashvin Bajaria - Page 423 of Vol.VII(2) of
Disciplinary Cases – Council’s decision dated 13th to 15th June,
1996)
Where a Chartered Accountant in practice had engaged himself in
other occupation as an LIC agent without obtaining permission of
the Council. Held that he was held guilty under the clause.
(Chief Commissioner (Admn.) & Commissioner of Income-tax,
Karnataka-I, Bangalore vs. H. Mohanlal Giriya - Page 443 of

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Vol.VII(2) of Disciplinary Cases – Council’s decision dated 13th to
15th June, 1996)
A Chartered Accountant in practice had held full-time salaried
employment with a Company without obtaining prior permission of
the Council, as required under Regulation 190A of the Chartered
Accountants Regulations 1988. He was held guilty under the
Clause for being engaged in employment without the permission of
the Council.
(R.K. Verma in Re: - Page 650 of Vol. VII(2) of Disciplinary Cases
– Council’s decision dated 16th to 18th January, 1997).
The charge against a Chartered Accountant, inter alia, was that he
had more than 20% shareholdings in a finance and management
consultancy private Company, and he could not enter into the
business of brokering. It was held that he had to be considered to
be a Managing Director or a whole-time Director under the
provisions of Section 2(26) of the Companies Act, 1956, since he
was entrusted with the whole or substantially the whole of the
management of the affairs of the Company. Since he failed to
obtain specific and prior approval of the Council for the above, he
was held guilty under the Clause.
(J.P. Gupta vs. T.C. Garg - Page 670 of Vol. VII(2) of Disciplinary
Cases – Council’s decision dated 21st to 23rd July, 1997).
A Chartered Accountant had entered into partnership in a firm with
the husband of the Complainant and others and agreed to look
after general administration, appointment of office staff, finance
and legal matters of civil and taxation nature. He was held guilty of
violation of Clause (11).
(Satwant Kaur vs. Rakshit Khosla - Page 696 of Vol. VII(2) of
Disciplinary Cases – Council’s decision dated 21st to 23rd July,
1997).
The Complainant alleged that the Respondent had engaged in
business and occupation other than the profession of Chartered
Accountancy and carried on consultancy services under a name
which though applied for by him was not approved by the Institute.
Thus he was guilty under the Clause.
(Amalendu Gupta vs. R.N. Kapur - Page 726 of Vol. VII(2) of
Disciplinary Cases – Council’s decision dated 8th to 10th
December, 1997).
A Chartered Accountant had been in full-time employment in a

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Company besides holding Certificate of Practice without obtaining
Institute’s permission and in the bank empanelment form, he had
given declaration to the effect that he was not devoting any time to
any occupation/vocation/business etc. other than the profession of
Chartered Accountant. He was held guilty for violation of Clause
(11) of Part I and Clause (1) of
(N.K. Gupta in Re: - Council’s decision dated 1st to 4th July, 1998 -
Page 1 of Volume VIII(2) of Disciplinary Cases).
The Respondent entered into a partnership with the Complainant
for running the business of manufacturing readymade garments.
He was held guilty for violation of Clause (11).
(D. Hemalatha vs. P.N. Malolan – Council’s decision dated 15th to
17th December, 1999 – Page 87 of Volume VIII(2) of Disciplinary
Cases).
Two members, while holding Certificate of Practice, had been in
full time employment with an Insurance Company without obtaining
the Institute’s permission to be so engaged. They also did not
disclose the particulars of their full time salaried employment at the
time of furnishing particulars in the prescribed Form for registration
of the articled clerks. They were held inter alia guilty for violation of
Clause (11) of Part I and Clause (1) of Part III of the First
Schedule.
(C.M. Mehrotra in Re: - Council’s decision dated 11th to 13th
October, 1999, Page 76 of Volume VIII(2) of Disciplinary Cases
and A.P. Gupta in Re:- Council’s decision dated 15th to 17th
December, 1999, Page 134 of Volume VIII(2) of Disciplinary
Cases).
Where a Chartered Accountant was a partner in a business firm
without disclosing his interest and obtaining permission from the
Council of the Institute. Held that he was inter alia guilty of
professional misconduct under the Clause.
(R.K. Gupta of M/s Gupta Rajendra & Co. vs. M.G. Baig – Page
158 of Vol. VIII(2) of Disciplinary Cases decided by the Council on
1st to 3rd August, 2001)
Where a Chartered Accountant was in full time employment with a
Company and had continued his services even after intimating the
Institute that he had resigned from service. He had shown himself
in full time practice while applying for bank empanelment for 3

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years. Held that he was inter alia guilty of professional misconduct
under Clause (11) and Regulation 190A of Chartered Accountant
Regulations 1988.
(S.C. Srivastava in Re: – Page 194 of Volume VIII(2) of the
Disciplinary Cases – Council’s decision dated 1st to 3rd August,
2001)
A Chartered Accountant while in employment with a Corporation
conveyed acceptance as statutory auditor to the complainant and
declared that he was a full time practicing Chartered Accountant
and not employed elsewhere. Held that the Chartered Accountant
was inter alia guilty of professional misconduct under Clause (11)
for not obtaining permission of the Council for engaging himself in
full time employment with the Corporation while holding Certificate
of Practice.
(The Senior Manager, Punjab National Bank vs. N.K. Chopra –
Pages 271 of Volume VIII (2) of Disciplinary Cases – Council’s
decision dated 1st to 3rd August, 2001)
A Chartered Accountant had engaged himself as a partner in two
business firms and Managing Director in two Companies and was
also holding Certificate of Practice without obtaining permission of
the Institute. Held that he was inter alia guilty of professional
misconduct under Clauses (4) and (11).
(Harish Kumar in Re: – Pages 286 of Vol. VIII (2) of Disciplinary
Cases – Council’s decision dated 1st to 3rd August, 2001)
A Chartered Accountant who was enrolled as a fellow member of
the Institute disclosed in the form “entry of record” that he was
engaged as partner of “M/s X Group of Magazines”. He was also
working as a Director of “M/s. A & Co.”. On enquiry, the
Respondent informed the Institute that he was engaged as a
partner of the said M/s. X Group of Magazines since 1978. The
Respondent had never disclosed about this even while he was
holding Certificate of Practice in all these years and nor did he
seek permission from the Institute to engage himself as a partner
in any other occupation. Held that the Chartered Accountant was
guilty of professional misconduct under Clause (11) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.
(Rajkumar H. Advani in Re: - Pages 373 of Volume VIII (2) of
Disciplinary Cases – Council’s decision dated 1st to 3rd August,
2001. Also published in the December 2002 issue of Institute’s
journal at page 627)

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The Souvenir published on the occasion of “Navaratrotsav” by
‘Parel Paschim Vibhag Va Tata Mills Welfare Centre 1991’
contained an advertisement with a caption “With best compliments
from Abhiraj R. Ranawat B.Com., A.C.A. (Chartered Accountant)
Share and Stock Sub-Broker. The said advertisement also
contained office timing 8 A.M. to 10 A.M., telephone nos. of market
and residence and addresses of office and market. Arising out of
the above, the Respondent inter alia held guilty in not taking
Institute’s permission for engaging in other occupation i.e. share
and stock sub-broker while holding certificate of practice in
violation of Clause (11) of Part I of Chartered Accountants Act,
1949.
(A.R. Ranawat in Re: - Pages 414 of Vol. VIII(2) of Disciplinary
Cases – Council’s decision dated 26th to 28th August, 2001)
While holding Certificate of Practice the Chartered Accountant had
been in full time employment. However, he did not obtain the
Institute’s permission to be so engaged as required under
Regulation 190A of the Chartered Accountant Regulation 1988.
Held that he was inter alia guilty of professional misconduct under
Clause (11) of Part I of the First Schedule of the Chartered
Accountants Act, 1949.
(N.K. Malhotra in Re: - Pages 443 of Volume VIII (2) of Disciplinary
Cases – Council’s decision dated 26th to 28th August, 2001)
Where a Chartered Accountant was holding Certificate of Practice
and was also in salaried employment elsewhere without obtaining
the permission of the Council. Held that he was inter alia guilty of
professional misconduct under Clause (11) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
(S.K. Ahuja in Re: - Pages 496 of Vol. VIII (2) of Disciplinary Cases
– Council’s decision dated 6th to 8th December, 2001)
A Chartered Accountant had helped private Financial Services
Company through his friends in Mumbai to investment in equity
and they had invested to the tune of Rs. 30 Lakhs for a limited
company. The Financial Services Company which was a
consultancy firm was run by his wife. Held that he was guilty of
professional misconduct under Clause (11) of Part I of the First
Schedule to the Chartered Accountants Act, 1949.
(M. Hariharan in Re: - Pages 1 of Vol. IX-2A–21(4) of Disciplinary
Cases – Council’s decision dated 2nd to 4th July, 2002)
Where a Chartered Accountant was doing the brokership of shares

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apart from holding Certificate of Practice without taking permission
from the Council. Held that he was inter alia guilty of professional
misconduct under Clause (11) of Part I of the First Schedule of the
Chartered Accountants Act, 1949.
(A.C. Sharma & Mrs. Indu Sharma, Proprietor, M/s Sharma Share
Trading Co. vs. Sandeep Abbot – Page 22 of Vol. IX – 2A – 21(4)
of Disciplinary Cases – Council’s decision dated 11th to 14th
September 2002)
Where a Chartered Accountant entered into partnership for export
of garments without obtaining permission from the Institute. Held
that he was inter alia guilty of professional misconduct under
Clause (11) of Part I of First Schedule to the Chartered
Accountants Act, 1949.
(Mrs. Vimla Manchanda vs. Ashok Kumar Malik - Page 38 of
Vol.IX-2A-21(4) of Disciplinary Cases – Council’s decision dated
11th to 14th September, 2002)
The Respondent accepted the position of Director and of auditor of
a Company for the year 1992 from May 1992 till March 1993. It
was argued that the Respondent audited the accounts of the
Company only after March 1993 when he was not the Director of
the Company. However, the appointment of the auditor, having
been made when he was director of the Company, the Respondent
was disqualified under Section 226(3)(b) of the Companies Act and
that he should not have accepted the position as auditor being the
Director of the Company. Held that the Respondent was guilty
under the Clause for not having obtained the prior permission of
the Council for engaging himself in other occupation, as director of
the Company despite of the fact that he was interested in the
Company as auditor and has also contravened the provisions of
section 224-A read with section 226 of the Companies Act, 1956.
(A.V. Deshmukh vs. J.D. Sanghvi – Page 491 of Vol. IX – 2A –
21(4) of Disciplinary Cases – Council’s decision dated 26th to 28th
December 2002)
The Respondent was in full time employment with a Company
without obtaining permission of the Institute besides holding
Certificate of Practice. Held that the Respondent was inter alia
guilty under the Clause.
(Arvind Kumar in Re: – Page 553 of Vol. IX – 2A – 21(4) of
Disciplinary Cases – Council’s decision dated 26th to 28th
December 2002)

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The Respondent, while in employment with a Company, passed
Chartered Accountancy Examination and sought permission in the
year 1987 to do practice, on a part time basis from the
Complainant Company. While still in employment, he wrote a letter
to the Institute that he had resigned, which was false and
misleading. Held that the Respondent was inter alia guilty of
professional misconduct under the Clause.
(Managing Director, A.P. Handicrafts Dev. Corpn. Ltd. vs. A.
Bhimeswara Swamy – Page 590 of Vol. IX – 2A – 21(4) of
Disciplinary Cases – Council’s decision dated 7th to 8th & 24th to
25th April 2003)
Where a Chartered Accountant acted as karta of a Hindu
Undivided Family (HUF) without taking prior permission of the
Council. Held that he was inter alia guilty of professional
misconduct under the clause.
(B.L. Asawa, Chief Manager, Punjab National Bank, Delhi vs.
P.K.Garg – Page 728 of Vol. IX – 2A – 21(4) of Disciplinary Cases
– Council’s decision dated 16th to 18th Sept. 2003)
Where a Chartered Accountant continued to remain as a Director
of a Company when one of his partners was interested in that
Company as an auditor. Held that he was guilty of professional
misconduct by continuing to hold office as a Director of the
Company,
(Registrar of Companies, West Bengal vs. K.C. Lunawat – Page
819 of Vol. IX-2A-21(4) of Disciplinary Cases – Council’s decision
dated 16th to 18th September, 2003)
The Respondent was engaged in business of Share Dealer and
Financial Advisor in which he was sole proprietor and was also
practicing as CA from the same address. Held that the Chartered
Accountant was inter alia guilty of professional misconduct within
the meaning of Clause (11) of Part I of First Schedule to the
Chartered Accountants Act, 1949.
(Chatar Lal Mantri vs. Vinod Kumar Agarwal – Page 869 of Vol. IX
– 2A – 21(4) of Disciplinary Cases – Council’s decision dated 16th
to 18th September, 2003)
The Respondent who was a partner in a C.A. firm besides being in
employment was also holding Certificate of Practice without taking
prior permission of the Institute. Held that the Chartered
Accountant was guilty of professional misconduct within the

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meaning of Clause (11) of Part I of First Schedule to the Chartered
Accountants Act, 1949.
(Sudesh Pandit in Re: – Page 882 of Vol. IX – 2A – 21(4) of
Disciplinary Cases–Council’s decision dated 16th to 18th Sept.
2003)
Where a Chartered Accountant had been carrying on business on
“Share Market” at the Calcutta Stock Exchange being a member of
the said exchange and was also holding Certificate of Practice
without taking prior permission of the Institute. Held that he was
guilty of professional misconduct within the meaning of Clause (11)
of Part I of First Schedule to the Chartered Accountants Act, 1949.
(S.K. Sharma vs. V.K. Kandoi – Page 122 of Vol. IX – 2B – 21(4) of
Disciplinary Cases – Council’s decision dated 2nd to 4th February,
2004)
Where a Chartered Accountant was engaged in business other
than the profession of Chartered Accountancy without taking prior
permission of the Institute. Held that he was guilty of professional
misconduct within the meaning of Clause (11) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Sri Nath Prasad vs. Vineet Aggarwal – Page 23 of Vol. IX – 2B –
21(4) of Disciplinary Cases – Council’s decision dated 2nd to 4th
February, 2004)
Where a Chartered Accountant was engaged in business of
purchase and sale of imported glasses other than profession of
Chartered Accountant without taking prior permission of the
Institute. Held that he was inter alia guilty of professional
misconduct within the meaning of Clause (11) of Part I of First
Schedule to the Chartered Accountants Act, 1949.
(Chintamany Abhyankar in Re: – Page 53 of Vol. IX – 2B – 21(4) of
Disciplinary Cases – Council’s decision dated 2nd to 4th February,
2004)
A member, without surrendering her certificate of practice, and
without obtaining prior permission from the Council of the ICAI,
accepted the job of a full time lecturer and as HOD (18 hrs per
week) in a College. The Council held that the member guilty of
professional misconduct under Clause (11) of Part I of the First
Schedule read with Sections 21 and 22 of the Chartered
Accountants Act, 1949.
(Saraswati Gurunath Joshi vs. Himangi S. Prabhu - Page 555 of

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Vol. X – 2A – 21(4) as decided on 21st June, 2006, 260th Meeting
of the Council)
A member while employed with the Complainant Company as
Chief Accountant had not taken permission of the Institute to
engage himself in employment while holding Certificate of Practice.
The Council held him guilty of professional misconduct falling
within the meaning of Clause (11) of Part I of the First Schedule of
the Chartered Accountants Act, 1949.
(Abdul Aziz Mohd. Khan, Director of M/s Precision Dies and Tools
Mfg. Co. vs. Rajesh Laddha - Page 537 of Vol. X – 2A – 21(4) as
decided on 4th February, 2006, 257th Meeting Of The Council)
A Chartered Accountant’s wife was made Chairperson of a
Company and the Company and the respondent firm operated
from same premises. The respondent as MD of Company,
executed an agreement for appointment of the Complainant as a
stockist and accepted deposit as security money. Respondent was
held guilty under clause (11) of Part I of First Schedule.
(Atul K. Gupta v. Swadesh C. Srivastava (25-CA(57)/99). - to be
published later under Disciplinary Cases Volume X -2B–21(4).
Council decision of 277th
Meeting held in March – April 2008)
A Chartered Accountant was whole time Director of a Company
and managing day to day affairs of Company along with another
person. Respondent was having Certificate of Practice. In equity
issue, the respondent along with another person siphoned out the
money leaving the shareholders valueless and also, solicited
clients by advertisements. Held, the Respondent is guilty under
Clause (11) of Part I of First Schedule and is not guilty of remaining
charges.
(Dr. Abhijit Sen, Alliance Credit & Investment Ltd. v. Parmanand
Tiwari of M/s Tiwari & Co. (25–CA(75)/98) - to be published later
under Disciplinary Cases Volume X -2B–21(4). Council decision of
278th
Meeting held in May, 2008).
A Chartered Accountant firm was working as Recovery Agent for
Housing Finance Company without taking any permission from the
Council to engage in any work other than the profession of
Chartered Accountancy. The Respondent had written a letter to the
Complainant for recovery of money wherein he represented
himself as an agent of LIC housing Finance Ltd. He intimidated the
Complainant with harsh and coercive method of recovery. Held

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that the Respondent is guilty under clauses (7) & (11) of Part I of
First Schedule.
(Yogesh Kumar Sharma v. O. P. Maheshwari of M/s O. P.
Maheshwari & Co. (25-CA(212)/2003) - to be published later under
Disciplinary Cases Volume X-2B–21(4). Council decision of 281st
Meeting held in October, 2008)
Clause (12): allows a person not being a member of the Institute in
practice, or a member not being his partner to sign on his
behalf or on behalf of his firm, any balance-sheet, profit
and loss account, report or financial statements.
The above clause prohibits a member from allowing another
member who is not in practice or his partner to sign any balance sheet,
Profit and loss account, or financial statement on his behalf or on
behalf of his firm.
This Clause is to be read in conjunction with Section 26 of the
Chartered Accountants Act, 1949 which stipulates that ‘No person
other than a member of the Institute shall sign any document on behalf
of a Chartered Accountant in practice or a firm of such chartered
Accountants in his or its professional capacity.’
The term ‘financial statement’ for the purposes of this clause would
cover an examination of the accounts or of financial statements given
under a statutory enactment or otherwise.
A report, however, may cover a wider range of documents but in
the context in which it is used in this clause, it would mean only a
report arising out of a professional assignment undertaken by him or
his firm and submitted by him or his firm to the client(s) or where so
required, to an outsider on behalf of himself or on behalf of the firm.
The subject matter of report should be the expression of a professional
opinion whether financial or non-financial. The financial statements
and the reports referred to in this clause obviously mean the financial
statements and reports as ultimately finalised and submitted to the
outside authorities.
The Council has clarified that the power to sign routine documents
on which a professional opinion or authentication is not required to be
expressed may be delegated in the following instances and such
delegation will not attract the provisions of this clause:-
(i) Issue of audit queries during the course of audit.
(ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/financial statements.

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(iv) Initialing and stamping of vouchers and of schedules
prepared for the purpose of audit.
(v) Acknowledging and carrying on routine correspondence with
clients.
(vi) Issue of memorandum of cash verification and other
physical verification or recording the results thereof in the
books of the clients.
(vii) Issuing acknowledgements for records produced.
(viii) Raising of bills and issuing acknowledgements for money
receipts.
(ix) Attending to routine matters in tax practice, subject to
provisions of S.288 of Income-tax Act.
(x) Any other matter incidental to the office administration and
routine work involved in practice of accountancy.
It is also clarified that where the authority to sign documents given
above is delegated by a Chartered Accountant or by a firm of
Chartered Accountants the fact that the documents have not been
signed by a Chartered Accountant is not a defence to him or to the firm
in an enquiry relating to professional misconduct.
However, the Council has decided that where a Chartered
Accountant while signing a report or, a financial statement or any other
document is statutorily required to disclose his name, the member
should disclose his name while appending his signature on the report
or document. Where there is no such statutory requirement, the
member may sign in the name of the firm.

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PART II OF THE FIRST SCHEDULE
Professional Misconduct in Relation to Members of
the Institute in Service.
The two clauses reproduced below included in this part of the First
Schedule defines different types of conduct of a member in Service
A member of the Institute (other than a member in practice) shall
be deemed to be guilty of professional misconduct, if he being an
employee of any company, firm or person —
Clause (1): pays or allows or agrees to pay directly or indirectly to
any person any share in the emoluments of the
employment undertaken by him;
Clause (2): accepts or agrees to accept any part of fees, profits or
gains from a lawyer, a chartered accountant or broker
engaged by such Company, firm or person or agent or
customer of such Company, firm or person by way of
commission or gratification;
A member in the foregoing circumstances would be guilty of
misconduct regardless of the fact that he was in whole-time or part-
time employment or that he was holding Certificate of Practice along
with his employment.
These are simple rules of ethics; both the circumstances have
already been considered in relation to a member in practice under
clauses (2) & (3) of part I of the First Schedule.

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PART III OF THE FIRST SCHEDULE
Professional Misconduct in Relation to Members of
the Institute Generally
A member of the Institute, whether in practice or not, shall be
deemed to be guilty of professional misconduct, if he:-
Clause (1): not being a fellow of the Institute, acts as a fellow of the
Institute.
Clause (2): does not supply the information called for, or does not
comply with the requirements asked for, by the Institute,
Council or any of its Committees, Director (Discipline),
Board of Discipline, Disciplinary Committee, Quality
Review Board or the Appellate Authority;
Where a Chartered Accountant had not disclosed to the Institute at
any time about his engagement as a proprietor of a non-Chartered
Accountants’ firm while holding certificate of practice and had not
furnished particulars of his engagement as a Director of a
Company despite various letters of the Institute which remained
unreplied. Held that he was guilty under clause (11) of Part I and
clauses (1) and (3) of Part III of the First Schedule.
(P.S. Rao in Re:- Page 110 of Vol. VII(2) of the Disciplinary Cases
– Council’s decision dated 9th to 11th April, 1992).
Where a Chartered Accountant had continued to train an articled
clerk though his name was removed from the membership of the
Institute and he had failed to send any reply to the Institute asking
him to send his explanation as to how he was training as his
articled clerk when he was not a member of the Institute. Held that
he was guilty under clause (3) of Part III of the First Schedule.
(S.M. Vohra in Re:- Page 151 of Vol.VII(2) of Disciplinary Cases –
Council’s decision dated 16th to 18th July, 1992).
Clause (3): While inviting professional work from another chartered
accountant or while responding to tenders or enquiries or
while advertising through a write up, or anything as
provided for in items (6) and (7) of Part I of this Schedule,
gives information knowing it to be false.
The foregoing clauses are intended to empower the Council to
enforce discipline over the members, and for obtaining information
from members or requiring compliance with any directions/Guidelines
issued by the Council.

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PART IV OF THE FIRST SCHEDULE
Other misconduct in relation to members of the
Institute generally
A member of the Institute, whether in practice or not, shall be
deemed to be guilty of other misconduct, if he—
Clause (1): is held guilty by any civil or criminal court for an offence
which is punishable with imprisonment for a term not
exceeding six months;
The members who are held guilty by a Court of law for an offence
punishable upto six months in person are also liable for misconduct.
Clause (2): in the opinion of the Council, brings disrepute to the
profession or the Institute as a result of his action
whether or not related to his professional work.
The Council has been empowered to opine on any action of a
member which brings the Institute or profession in disrepute as
misconduct.
This Clause, read with Section 22 of the Act, now defines ‘Other
misconduct’, which has been covered under this Part does not limit or
abridge in anyway the power conferred or duty cast on the Director
(Discipline) under Section 21(1) of the Act to inquire into the conduct of
any member of the Institute under any other circumstances.

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5.16 The Second Schedule
The profession of accountancy commands respect and confidence
of the general public. The ethics of an accountant signify his behaviour
towards members of the profession as well as general public. Thus, as
a practitioner or an employee, a Chartered Accountant should
conduct/restrict his actions in accordance with the provisions contained
in the respective parts of this Schedule. If they are found guilty of any
of the acts or omissions stated in any of the parts of this Schedule,
they shall be deemed to be guilty of professional misconduct.
PART I OF SECOND SCHEDULE
Professional misconduct in relation to chartered
accountants in practice:
A chartered accountant in practice shall be deemed to be guilty of
professional misconduct, if he –
Clause (1): discloses information acquired in the course of his
professional engagement to any person other than his
client so engaging him, without the consent of his client
or otherwise than as required by any law for the time
being in force;
An accountant, in public practice, has access to a great deal of
information of his client which is of a highly confidential character. It is
important for the work of an accountant and for maintaining the dignity
and status of the profession that he should treat such information as
having been provided to him, only to facilitate the performance of his
professional duties for which his services have been engaged. To
divulge such information would be a breach of professional confidence
which may give rise to the most serious consequences, even to an
action by the client for the loss suffered by him through such a breach.
But for this confidence that the public has developed in the integrity of
accountants, it would not be possible for persons in a similar trade or
industry to appoint the same accountant. The accountant’s duty not to
disclose continues even after the completion of his assignment. In the
context of disclosure of information, attention of members is invited to
the provisions of Securities and Exchange Board of India (Insider
Trading) Regulations, 1992.
If disclosure is required as a part of performance of professional
duty by a practising member in relation to a client, the fact that such
performance is required by the client would itself amount to the client

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consenting to such disclosure. Thus, a member in practice submitting
information to, say, Exchange Control authorities, while performing his
professional duties cannot be considered to have made disclosure
without the aforesaid consent. But, in all cases, the request or the
initiative that the member does prefer the service which would entail
such disclosure must come from the client in relation to whose affairs
the disclosure would be entailed.
If disclosure is required in other cases, it would be necessary to
ensure that the consent of the client is given by a person who is
competent to accord such consent. Thus, in the case of a sole-
proprietory concern, the consent may be given by the proprietor or his
constituted attorney who is legally empowered to give such consent. In
the case of a partnership firm, since in turn, every partner has the
authority to bind the firm by his acts, the consent may be given by any
partner. In the case of a Company, by virtue of Section 291 of the
Companies Act, the Board of Directors is empowered to do all that the
Company in a general meeting may do unless a resolution by the
Company in a general meeting is required by the Act or by the
Memorandum or Articles of the Company. Hence, the consent may be
given by the Managing Director if the powers of the Board of Directors
are delegated to him comprehensively enough to include the power to
give such consent, but if the powers of the Board of Directors are not
so delegated, the consent should be obtained by means of resolution
of the Board of Directors of the Company.
An auditor is not required to provide the client or the other auditors
of the same enterprise or its related enterprise such as a parent or a
subsidiary, access to his audit working papers. The main auditors of an
enterprise do not have right of access to the audit working papers of
the branch auditors. In the case of a Company, the statutory auditor
has to consider the report of the branch auditor and has a right to seek
clarifications and/or to visit the branch if he deems it necessary to do
so for the performance of the duties as auditor. An auditor can rely on
the work of another auditor, without having any right of access to the
audit working papers of the other auditor. For this purpose, the term
‘auditor’ includes ‘internal auditor’.
However, the auditor may, at his discretion, in cases considered
appropriate by him, make portions of or extracts from his working
papers available to the client. The above clarification has been
published in April, 2000 issue of the Journal, ‘The Chartered
Accountant’ at page 89.
There is a difference between sharing of working papers and

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sharing of information. So far as the information is concerned, he can
provide the same to the client or to a Regulatory body after obtaining
the consent of the client.
It is not possible to set out all the circumstances under which
disclosure of information may be required by law. If under any legal
compulsion and if it is not legally permissible to claim privilege under
the Evidence Act, 1872 (S.126), the disclosure made by a member of
such information may not be considered as misconduct. However,
such matters involve niceties of law and expert legal advice may be
sought prior to such disclosure.
The only circumstances in which this duty of confidence may give
rise to a difficulty is where the accountant has reason to believe that
the client has been guilty of some unlawful act or default. This matter is
of special significance in the case where the client is guilty of tax
evasion.
Role of Chartered Accountants in relation to unlawful
acts by their Clients.
(Attention is also drawn to the members to CARO and Audit
Standards)
1. The question of the member’s liability when he is not directly
involved in tax frauds committed by his client but he discovers such
fraud in the course of his professional work, the action recommended
to be taken by him is indicated below.
2. The recommendations below are based on the following premises:-
(a) No duty is cast on a member, whether by Section 39 of the
Code of Criminal Procedure 1973, or by any other
enactment, to inform the Income-tax Authorities about
taxation frauds by his client of which he comes to know
during the course of his professional work.
(b) Under Section 126 of the Evidence Act, a barrister, attorney,
pleader or Vakil is barred from disclosing, except with the
express consent of his client, any communication made to
him in the course of and for the purpose of his employment
or to state the contents or conditions of any document with
which he has become acquainted with in such course. The
proceedings before the Income-tax authorities are judicial
proceedings and the assessee is authorised to be
represented by a Chartered Accountant. The privilege given
and the restrictions imposed by Section 126 apply as

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between the client and the member, as the member is the
client’s attorney. Nothing in Section 126 shall protect from
non-disclosure any fact observed by a barrister, pleader,
attorney or Vakil in the course of his employment at such
showing that any crime or fraud has been committed since
the commencement of his employment.
(c) Subject to the above, it is not the duty of a member to shield
a client from the consequences of his tax frauds, on the
contrary it is guiding principle of professional conduct to
discourage tax evasion.
3. The paragraphs that follow apply to intentional suppressions or
misstatement by the client in his tax returns. If there is a genuine
mistake or inadvertent omission, it is presumed that the client would
not have any objection to make a complete disclosure to the tax
authorities.
4. If the fraud discovered by the member relates to the accounts or tax
matters of the client for past year(s) for which the client was not
represented by the member, the client should be advised to make a
disclosure. The member may, however, continue to act for the client in
respect of current matters, but is under no obligation so to continue. It
is assumed that the past fraud does not affect in any way the current
tax matters, and the member should be extra careful to ensure that
past behaviour is not reflected in current matters.
5. If the fraud relates to accounts etc., examined by the member and
reported upon, on the basis of which the tax assessment in the past
has been made, or is currently to be made, the client should be
advised to make a complete disclosure. If the client should refuse, he
should be informed that the member would be entitled to dissociate
himself from the case, and that, further, he would inform the authorities
that the accounts prepared by him and/or reported upon by him are
unreliable, on account of certain information since obtained. He should
then make such a report to the authorities. But the information
subsequently obtained should not as such be communicated to the
authorities, unless the client consents in writing.
6. Normally, if disclosure is consented to by the client it should be
made immediately. But if the suppression is trivial, the disclosure may
be made when the current return is submitted. But if there is any
possibility that the collection of tax would be prejudiced, on account of
the client disposing of his property or removing his person from the
jurisdiction of the Income-tax authorities, the postponement of
disclosure would be improper.

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7. If the suppression etc. relates to accounts or returns currently being
prepared, the member should advise the client to make full disclosure
in the accounts and/or return, and should the client refuse, he should
make full reservation in his report, and should not associate himself
with the return.
8. If the employment of the member is dispensed with before the
accounts are completed or are reported on, or the return is submitted,
no further duty regarding disclosure etc. rests on the member.
9. The suppression may relate to accounts which are not prepared
and/or reported upon by the member, e.g., personal income, income
from investments other than business investments etc. The client may
refuse full disclosure in the tax return, but still wish that the member
should continue to prepare and/or report on his business accounts,
though this is quite unlikely in practice. If so requested, the member
may continue to do so, but is under no obligation so to do.
10. It should be impressed on the client that:
(a) while disclosure may entail only monetary penalties, non-
disclosure and subsequent discovery thereof may entail
imprisonment and fine, in addition to penalties.
(b) any intimation by the member to the Income-tax authorities
that the member dissociates himself from the case is certain
to start investigation by them in the whole matter.
11. The Income-tax authorities may summon the member for the
purpose of examining him on oath, under Section 131(1)(b) of the
Income-tax Act. The immunity from disclosure afforded by Section 126
of the Evidence Act, and the extent of such immunity are questions
which involve niceties of law and expert legal advice should be sought
in the matter. The refusal of the member to disclose may be taken
down, and he may be required to certify it on oath.
12. Production of books of account and other documents may be
called for under Section 131(1)(c). Here also the protection offered by
Section 126 of the Evidence Act, is a matter for expert legal advice.
The decisions of the Court on this clause are given below:
Disclosure of information Where a Chartered Accountant disclosed
to the Income-tax Officer information acquired in the course of his
professional engagement without the consent of his clients - Held,
he was guilty under clause (1).
(Jamnadas Harakchand and Others vs. P.C. Parekh - Page 492 of
Vol. IV of the Disciplinary Cases and pages 26-44 of July, 1967

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issue of the Institute’s Journal - Judgement delivered on 12/16th
January, 1967).
Where a Chartered Accountant had disclosed information acquired
by him in the course of his professional engagement to persons
other than his clients without the consent of his client and without
requirement in any law. It was held that he was guilty of
professional misconduct under Clause (1) of Part I of the Second
Schedule to the Chartered Accountants Act.
(Bank of India vs. Ved Prakash - Page 458 of Vol.VI(1) of
Disciplinary Cases - Judgement dated 13th July, 1989).
The Respondent was the auditor of a Branch of a Bank for the
years ended 31st December, 1985 and 31st December, 1986. In
the course of audit, he found certain irregularities/ violations on
which he drew the attention of the Managing Director of the Bank
by his letter dated 5th August, 1986. Since to his knowledge, no
action was taken by the Managing Director, he wrote letters to the
various Government authorities informing them various
irregularities/violations as aforesaid. The Complainant alleged that
the Respondent was guilty under this Clause. Having regard to the
opinion of the Disciplinary Committee that there was no malafide
intention on the part of the Respondent in writing letters to various
Government authorities in regard to the irregularities noted by him
in course of his audit of the Bank as well as the disturbed mental
condition of the Respondent during the relevant time, the Council
thought it fit to recommend to the Kerala High Court that the
proceedings against the Respondent may be filed. Under the
circumstances of the case, the High Court decided to file the case.
(State Bank of Travancore vs. Mani S. Abraham - Page 247 of Vol.
VII(1) of Disciplinary Cases - Judgement dated 17th January,
2000).
Where a Chartered Accountant discloses to the Registrar of
Companies (ROC) information acquired during the course of his
professional engagement without the consent of the Client and
without there being any requirement in Law to disclose the same.
The Court rejected the contention of the respondent that the
voluntary disclosure made by him to the ROC was in public interest
and that the same was done with a view to bring home the
circumstances under which he was wrongfully removed from the
auditorship. The Court observed that:
“From the facts on record it is evident that the respondent was

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aggrieved by the action of the company in removing him from the
auditorship and there were disputes regarding non-payment of his
professional fees and in these circumstances the letter was written
more out of vengeance rather than public interest. If the public
interest was the paramount consideration, then the respondent
would have made a report disclosing all such information to the
shareholders/creditors. The fact that no such report was made and
the fact that after his removal from the auditorship on 14.12.1982,
the respondent chose to write a letter on 28.12.1982 to the ROC
without there being such obligation, clearly shows that the plea of
public interest raised is only a ruse and not a bonafide action on
the part of the respondent. It cannot also be stated that the letter
was written with a view to protect his own interest. No action was
contemplated by the ROC against the respondent and hence there
was no question of addressing a letter to protect his own interest.
Therefore, addressing a letter to the ROC was neither in public
interest nor with a view to protect his own interest.”
Held that the respondent had committed gross professional
misconduct under Clause 1 of Part I of the Second Schedule of the
Chartered Accountants Act, 1949.
(Director, M/s Shree Industrial Rubber Works Pvt. Ltd. vs. S.R.
Khanna - Page 437 of Vol. VIII–1–21(6) of Disciplinary Cases-
Judgement dated 5th August, 2004)
Clause (2): certifies or submits in his name, or in the name of his
firm, a report of an examination of financial statements
unless the examination of such statements and the
related records has been made by him or by a partner or
an employee in his firm or by another chartered
accountant in practice;
The above clause restrains a member from subscribing to the
report on a financial statement so long as it has not been examined by
him or by a partner or an employee of his firm or by another chartered
accountant in practice. It has been introduced to ensure that the work
entrusted to him has been carried out by the member either directly or
under his supervision before he renders his report.
An exception however has been made in respect of an
examination carried out by another Chartered Accountant in practice.
This enables two or more members to accept a joint assignment or
enables a member also to carry out the examination of financial
statements by or with the assistance of another Chartered Accountant
in practice.

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Where the joint auditors are appointed, the work is normally
divided among themselves in terms of identifiable units or specified
areas, or with reference to the items of assets or liabilities, or income
or expenditure or to the period of time etc. Such division should be
adequately documented and communicated to the auditee.
In the course of his work, where a joint auditor comes across
matters which are relevant to the areas of responsibility of other joint
auditors and which deserve their attention, or which require disclosure
or require discussion with, or application of judgement by, other joint
auditors, he should communicate the same to all the other joint
auditors in writing. This should be done by the submission of a report
or note prior to the finalisation of the audit.
In respect of audit work divided among the joint auditors, each joint
auditor is responsible only for the work allocated to him, whether or not
he has prepared a separate report on the work performed by him. On
the other hand, all the joint auditors are jointly and severally
responsible-
(a) in respect of the audit work which is not divided among the
joint auditors and is carried out by all of them;
(b) in respect of decisions taken by all the joint auditors
concerning the nature, timing or extent of the audit
procedures to be performed by any of the joint auditors. It
may, however, be clarified that all the joint auditors are
responsible only in respect of the appropriateness of the
decisions concerning the nature, timing or extent of the audit
procedures agreed upon among them; proper execution of
these audit procedures is the separate and specific
responsibility of the joint auditor concerned;
(c) in respect of matters which are bought to the notice of the
joint auditors by any one of them and on which there is an
agreement among the joint auditors;
(d) for examining that the financial statements of the entity
comply with the disclosure requirements of the relevant
statute; and
(e) for ensuring that the audit report complies with the
requirements of the relevant statute.
Each joint auditor should decide for himself the appropriateness of
using test checks or sampling, the nature, timing and extent of audit
procedures to be applied in relation to the work allotted to him.

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Obtaining and evaluating the information and explanations from the
management is the joint responsibility of the joint auditors unless they
agree upon a specific pattern of distribution of this responsibility. In
case of distribution of the responsibility, the liability of the joint auditors
is limited to the area allotted to that auditor.
For detailed consideration of the subject, the members must refer
to Standard on Auditing (SA) 299, “Responsibility of Joint Auditors”.
The decisions of the Court on this clause are given below:
Where a Chartered Accountant issued certificates of consumption
which did not reflects the correct factual position of the
consumption of raw materials by the concerned units. Also the
same certificates has been issued without examining and
scrutinising thoroughly/properly the requisite records. Held that the
respondent was guilty of professional misconduct under clauses
(2) and (7) of part I of second schedule read with section 21 & 22
of the Chartered Accountants Act, 1949.
(JDI, Bombay vs. B.K. Kurhade - Page 585 of Vol. VIII – 1 – 21(6)
of Disciplinary Cases- Judgement dated 12th August, 2004)
Where a Chartered Accountant issued false certificates to several
parties for past exports for monetary consideration without verifying
any supporting records or documents. On the strength of these
false certificates, certain unscrupulous importers were able to
obtain import license, effect imports and clear these free of duty,
perpetuating a fraud on Government revenue and depriving the
Government of its legitimate revenue to the tune of several Crores
of Rupees. On his statements to the Department he confessed the
above fact and disclosed that he had issued these certificates for
monetary consideration and without verification of supporting
documents on record. Held that the respondent was guilty of
professional misconduct within the meaning of clauses (2), (7) &
(8) of Part I of the second schedule of the Chartered Accountants
Act, 1949 in terms of section 21 & 22 of the said Act.
(P.N. Vittal Dass, Addl. Collector of Customs, Mumbai vs. P.U.
Patil - Page 827 of Vol. VIII – 1 – 21(6) of Disciplinary Cases -
Judgement dated 13th August, 2004)
Clause (3): permits his name or the name of his firm to be used in
connection with an estimate of earnings contingent upon
future transactions in a manner which may lead to the
belief that he vouches for the accuracy of the forecast;
The Council has issued Standard on Assurance Engagements

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(SAE) 3400, “The Examination of Prospective Financial Information”,
which is effective in relation to reports on projections/forecasts, issued
on or after April 1, 2007. Pursuant to the issuance of this Standard, the
Guidance Note on Accountant’s Report on Profit Forecasts and/or
Financial Forecasts, issued in September, 1982 stands withdrawn. The
guidance provided in this Standard is in line with the provisions of
clause (3) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949. As per the opinion of the Council while
finalising the Guidance Note on Accountant’s Report on Profit
Forecasts and/or Financial Forecasts at its 100th
meeting held on 22nd
through 24th
July 1982, a chartered accountant can participate in the
preparation of profit or financial forecasts and can review them,
provided he indicates clearly in his report the sources of information,
the basis of forecasts and also the major assumptions made in arriving
at the forecasts and so long as he does not vouch for the accuracy of
the forecasts. The Council has further opined that the same opinion
would also apply to projections made on the basis of hypothetical
assumptions about future events and management actions which are
not necessarily expected to take place so long as the auditor does not
vouch for the accuracy of the projection.
Further, the attention of the members is drawn to “Guidance Note
on Reports in Company Prospectuses (Revised)” issued by the
Council in October, 2006. This Guidance Note provides guidance on
compliance with the provisions of the Companies Act, 1956 and the
Securities and Exchange Board of India (Disclosure and Investor
Protection) Guidelines, 2000 relating to the reports required to be
issued by chartered accountants in prospectus/statement in lieu of
prospectus issued by the companies for the offerings made in India.
Clause (4): expresses his opinion on financial statements of any
business or enterprise in which he, his firm or a partner in
his firm has a substantial interest;
If the opinion of auditors are to command respect and the
confidence of the public, it is essential that it must be free of any
interest which is likely to affect their independence. Since financial
interest in the business can be a substantial interest and one of the
important factors which may disturb independence, the existence of
such an interest direct or indirect affects the opinion of the auditors. As
per this clause, an auditor should not express his opinion on financial
statements of any business or enterprise wherein he has a substantial
interest. This is intended to assure the public as regards the faith and
confidences that could be reposed on the independent opinion
expressed by the auditors.

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In this connection attention of members is also invited to Chapter
IV of Council Guidelines No. 1-CA(7)/02/2008 dated 8TH
August, 2008.
The said guidelines state that a member of the Institute shall not
express his opinion on financial statements of any business or
enterprise in which one or more persons, who are his “relatives” within
the meaning of Section 6 of the Companies Act, 1956, have either by
themselves or in conjunction with such members, a substantial interest
in the said business or enterprise.
For the purpose of said guideline and aforesaid clause, the
expression “substantial interest” shall have meaning as is assigned
thereto, under Appendix (9) of the Chartered Accountants Regulations,
1988. (see Appendix-‘F’).
The words “financial statements” used in this clause would cover
both reports and certificates usually given after an examination of the
accounts or the financial statement or any attest function under any
statutory enactment or for purposes of income-tax assessments. This
would not, however, apply to cases where such statements are
prepared by members in employment purely for the information of their
respective employers in the normal course of their duties and not
meant to be submitted to any outside authority.
Public conscience is expected to be ahead of the law. Members,
therefore, are expected to interpret the requirement as regards
independence much more strictly than what the law requires and
should not place themselves in positions which would either
compromise or jeopardise their independence.
Member must take care to see that they do not land themselves in
situations where there could be conflict of interest and duty. For
example, where a Chartered Accountant is appointed the Liquidator of
a Company, he should not qua a Chartered Accountant himself, audit
the Statement of Accounts to be filed under Section 551(1) of the
Companies Act, 1956. The audit in such circumstances should be
done by a chartered Accountant other than the one who is the
Liquidator of the Company.
In this connection, the Council has decided not to permit a
Chartered Accountant in employment to certify the financial statements
of the concern in which he is employed, or of a concern under the
same management as the concern in which he is employed, even
though he holds certificate of practice and that such certification can
be done by any Chartered Accountant in practice. This restriction
would not however apply where the certification is permitted by any
law, e.g. Section 228(iv) of the Companies Act, 1956 and the

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Companies (Branch Audit Exemption) Rules, 1961 made thereunder.
The Council has also decided that a Chartered Accountant should not
by himself or in his firm name:-
(i) accept the auditorship of a college, if he is working as a
part-time lecturer in the college.
(ii) accept the auditorship of a trust where his partner is either
an employee or a trustee of the trust.
The Council has, in this connection, issued the following
guidelines:
Attention of the members is invited to the provisions of Clause (4)
of Part I of the Second Schedule to the Chartered Accountants Act
which provides that a Chartered Accountant in practice shall be
deemed to be guilty of professional misconduct if he expresses his
opinion on financial statements of any business or any enterprise in
which he, his firm or a partner in his firm has a substantial interest.
Many new areas of professional work have been added, e.g., Tax
Audit, Concurrent Audit of Banks, Concurrent Audit of Borrowers of
Financial institutions, Audit of non-corporate borrowers of banks and
financial institutions, audit of stock exchange, brokers etc. The Council
wishes to emphasize that the aforesaid requirement of Clause (4) are
equally applicable while performing all types of attest functions by the
members. Some of the situations which may arise in the applicability of
Clause (4) are discussed below for the guidance of members:-
1. Where the member, his firm or his partner or his relative has
substantial interest in the business or enterprise.
The independence of mind is a fundamental concept of audit
and/or expression of opinion on the financial statements in any
form and, therefore, must always be maintained. Nothing can
substitute for the essential and fundamental requirements of
independence. Therefore, the Council’s views are clarified in
the following circumstances.
(i) An enterprise/concern of which a member is either an owner
or a partner
The holding of interest in the business or enterprise by a
member himself whether as sole-proprietor or partner in a
firm, in the opinion of the Council, would affect his
independence of mind in the performance of professional
duties in conducting the audit and/or expressing an opinion
on financial statements of such enterprise. Therefore, a

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member should not audit financial statements of such
business or enterprise.
(ii) Where the partner or relative of a member has substantial
interest
The holding of substantial interest by the partner or relative
of the member in the business or enterprise of which the
audit is to be carried out and opinion is to be expressed on
the financial statement, may also affect the independence of
mind of the member, in the opinion of Council, in the
performance of professional duties. Therefore, the member
may, for the same reasons as not to compromise his
independence, desist from undertaking the audit of financial
statements of such business or enterprise.
2. Where the member or his partner or relative is a director or in
the employment of an officer or an employee of the Company.
Section 226 of the Companies Act specifically prohibits a
member from auditing the accounts of a Company in which he
is a director or in the employment of an officer or an employee
of the Company. Although the provisions of the aforesaid
section are not specifically applicable in the context of audits
performed under other statutes, e.g. tax audit, yet the
underlying principle of independence of mind is equally
applicable in those situations also. Therefore, the Council’s
views are clarified in the following situations.
(i) Where a member is a director
In cases where the member is a director of a Company the
financial statements of which are to be audited and/or
opinion is to be expressed, he should not undertake such
job and/or express opinion on the financial statements of
that Company.
(ii) Where a partner or relative of the member is a director in the
Company who has a substantial interest.
In such cases for the reason as not to compromise with the
independence of mind, the member may desist from undertaking the
audit of financial statements and/or expression of opinion thereon.
The meaning of the words “relative” and “substantial interest” shall
be the same as are contained in the Resolution passed by the Council
in pursuance to Regulation, 190A of Chartered Accountants
Regulations, 1988 (see Appendix-‘F’).

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An accountant is expected to be no less independent in the
discharge of his duties as a tax consultant or as a financial adviser
than as auditor. In fact, it is necessary that he should bear the same
degree of integrity and independence of mind in all spheres of his
work. Unless this is done, the accounts of Companies audited by
Chartered Accountants or statements made by them during the course
of assessment proceedings would not be relied upon as correct by the
authorities.
The Council has clarified that the members are not permitted to
write the books of account of their auditee clients.
A statutory auditor of a Company cannot also be its internal
auditor, as it will not be possible for him to give independent and
objective report issued under sub-Section 4A of Section 227 of the
Companies Act read with the Companies (Auditor’s Report) Order,
2003.
A member should satisfy himself before accepting an appointment
as an auditor of an entity that his appointment is in accordance with
the statute governing the entity. In case the entity is constituted under
a trust deed/instrument, the member should satisfy whether his
appointment is valid according to the instrument constituting the entity
and rules and regulations made thereunder. In case the appointment is
to be authorised by the regulatory authorities such as in the case of co-
operative societies, trusts etc. then the member must satisfy whether
such regulatory authorities have authorised the managing committee
of the society/trust for appointment of the auditors. In a case where
any entity is being managed by a Managing Committee or Board of
Trustees or Board of Governors by whatever name called he should
ensure that his appointment is duly made by a resolution passed of
such Managing Committee or Board of Trustees or Board of
Governors. Even in case of partnership or sole proprietory concerns,
the member must ensure that a letter of appointment/engagement is
given by the firm/sole proprietor before he accepts the appointment/
engagement.
The decisions of the Courts on this clause are briefly given below:-
Where a Chartered Accountant conducted the audit of accounts of
an evening college in Mangalore besides working in the same
college as Lecturer/Vice-Principal. Held that he was guilty of
professional misconduct under the Clause.
(H.R. Shetty in Re: – Page 402 of Vol. VIII–1–21(6) of Disciplinary
Cases – Judgement delivered dated 17th December, 2003 and

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published in the April, 2004 issue of Institute’s Journal at page
1122)
Where a Chartered Accountant was auditor of a private limited
Company in Ambala City since its inception, while his wife held 65
per cent of the shares in the said Company, and was the Director
of the Company. Held that the Respondent was inter alia guilty of
professional misconduct under Clause (4) of Part I of the Second
Schedule.
(Promila Jain vs. Hardesh Kant – Page 416 of Vol. VIII – 1 – 21(6)
of Disciplinary Cases – Judgement delivered dated 6th May, 2004)
Where a Chartered Accountant accepted the audit of a company
inspite of the fact that his wife was the Director of the company and
also holding substantial interest in that Company. He had also not
disclosed such interest in his report while expressing his opinion on
the financial statements of such Company. Held that the
respondent was guilty of professional misconduct within the
meaning of clause (4) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949 in terms of section 21 read with
section 22 of the said Act.
(Bharat D. Bhatia vs. Vijay R. Ashar - Page 807 of Vol. VIII – 1 –
21(6) of Disciplinary Cases- Judgement dated 13th August, 2004)
Clause (5): fails to disclose a material fact known to him which is not
disclosed in a financial statement, but disclosure of which
is necessary in making such financial statement where he
is concerned with that financial statement in a
professional capacity;
It may be observed that this Clause refers to failure to disclose a
material fact, which is known to him, in a financial statement reported
on by the auditor. It is obvious, that before a member could be held
guilty of misconduct, materiality has to be established. The word
materiality has been defined in Standard on Auditing (SA) 320, “Audit
Materiality” as follows:
“Information is material, if its mis-statement (i.e., omission or
erroneous statement) could influence the economic decisions of
users taken on the basis of the financial information. Materiality
depends on the size and nature of the item, judged in the particular
circumstances of its misstatement. Thus, materiality provides a
threshold or cut-off point rather than being a primary qualitative
characteristic which the information must have if it is to be useful.”
It should be borne in mind that there may be cases where an item

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may not be material from the point of view of the balance sheet, but
may have material significance in relation to the profit and loss account
for that year and vice-versa. It is therefore essential that care should
be taken to ensure that the aspect of materiality should be judged in
relation to both the balance sheet and the profit and loss account.
The words financial statements used in this clause would cover
both reports and certificates usually given after an examination of the
accounts or of financial statement under any statutory enactment,
or/for purposes of income-tax assessments. This would not however,
apply to cases where such statements are prepared by members in
employment purely for the information of their respective employers in
the normal course of their duties and not meant to be submitted to any
outside authority.
The decisions of the Courts on this clause are briefly given below:-
Where a Chartered Accountant failed to report to the shareholders
of a Company about the non-creation of a sinking fund in
accordance with the Debenture Trust Deed and did not make clear
that the amounts shown as towards Sinking Fund were borrowed
from the Managing Agents of the Company - Held, that the
Chartered Accountant was in duty bound to see that the nature and
subject matter of the charge over a security and the nature and
mode of valuation of the Sinking Fund Investments were disclosed
in the Balance Sheet in accordance with Form F and he was found
guilty of misconduct.
(Davar & Sons Ltd. vs. M.S. Krishnaswamy - Page 120 of Vol.I of
the Disciplinary Cases and pages 33-40 of June, 1952 issue of the
Institute’s bulletin - Judgement delivered on 3rd October, 1952).
Where a Chartered Accountant failed to examine how debts
became bad and were written off - Held he was guilty under Clause
(5).
(A.Doraiswamy Naidu vs. P.N. Raghavendra Rao - Page 468 of
Vol. IV of the Disciplinary Cases and pages 463-465 of February
1966 issue of the Institute’s Journal -Judgement delivered on 27th
October, 1965).
Where a Chartered Accountant had falsely certified the circulation
figures of a newspaper by stating that he had checked inter alia the
newsprint sheets and machine room returns when they had not at
all been maintained by the publisher. - Held he was guilty under
Clauses (5) and (9).
(Audit Bureau of Circulations Ltd. vs. K.L. Agarwal - Page 616 of

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Vol.IV of the Disciplinary Cases and Page 438 of February, 1968
issue of the Institute’s Journal - Judgement delivered on 24th July,
1967).
Where a Chartered Accountant had not disclosed the fact that a
large amount of loan had been given out of the funds of an
Employees Provident Fund to the Employer Company in
contravention of the Rules of the Provident Fund and had failed to
report on the default in clearing the cheques received in re-
payment of the loan. Held by the High Court that he was not guilty
of any non- disclosure to the individual subscribers of the Provident
Fund because he owed no duty to disclose to them and he was
well within his rights to have disclosed the irregularities to the
Trustees themselves and to the Company which had appointed
him.
Held by the Supreme Court on appeal that it was no defence for
the Chartered Accountant to say that he had disclosed the
irregularities to the Company as it was his duty to have made a
disclosure thereof to the beneficiaries of the Provident Fund in the
statement of accounts signed by him as the legal position of the
Auditor in the present case was similar to that of the auditor
appointed under the Companies Act. He was therefore guilty of
professional misconduct under Clause (5).
(Kishori Lal Dutta vs. P.K. Mukherjee - Page 646 of Vol. IV of the
Disciplinary Cases and page 573 of April, 1968 issue of the
Institute’s Journal -Judgement delivered on 26th February, 1968).
Where a Chartered Accountant had issued publishers certificates
of circulations in disregard of the Complainants Rules which he
had undertaken to comply with -Held he was guilty under clauses
(5), (6) & (9) of Part I of the Second Schedule.
(Audit Bureau of Circulations vs. V.I. Oommen - Page 51 of Vol.VII
(1) of Disciplinary cases - judgement dated 6th October, 1995)
Where a Chartered Accountant had issued a false Certificate,
certifying existence of assets created by company, on the basis of
which a Financial Corporation released a sum of Rs.4.65 lakhs to
the said Company. The Respondent, it was alleged, had certified
that the Company had invested Rs.5,04,424/- whereas on
inspection by officers of the Corporation, it was found that the
investment by the Company was only to the extent of Rs.58,169/-.
Held that the Respondent was guilty of professional misconduct
under Clause (5), (6), (7) and (8) of Part I of the Second Schedule.

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(Deputy General Manager, Rajasthan Financial Corporation, Pali
vs. C.K. Vyas – Page 321 of Vol. VIII – 1 – 21(6) of Disciplinary
Cases – Judgement delivered dated 29th November, 2003)
Where a chartered accountant failed to bring attention to the heavy
cash transaction entered into by the assessee in his audit report
submitted in Form 3CD in terms of section 44AB of the Income Tax
Act, 1961 for the Assessment year 1988-89. Held that the
respondent was guilty of professional misconduct within the
meaning of Clauses (5), (6), (7) and (8) of part I of the second
schedule to the Chartered Accountants Act, 1949 in terms of
section 21 read with section 22 of the said Act.
(V.C.Agarwal in Re. - Page 768 of Vol. VIII – 1 – 21(6) of
Disciplinary Cases- Judgement dated 13th August, 2004)
Where a Chartered Accountant concealed material facts, which
jeopardized a Bank’s interest by introducing a non-existing firm to
the Bank. Held that, he was guilty of professional misconduct
within the meaning of clause (5) of Part I of the Second Schedule
to the Chartered Accountants Act, 1949.
(B.L.Asawa, Chief manager, PNB, Delhi v. P.K. Garg; Pg- 116 of
Vol. IX (1) of the Disciplinary Cases- Judgement of Hon’ble High
Court dated 19th
January, 2007).
A Chartered Accountant issued certificates certifying the utilization
of funds by the Company for the amount granted and disbursed by
a bank without verifying the records properly before issuing the
aforesaid certificates. Also, the said certificate did not reflect the
end use of the funds. He was grossly negligent in issuing the said
certificate(s). The auditor knowingly certified the end use of money
received by the auditee incorrectly and improperly which is
undoubtedly an un-pardonable act on the part of the Respondent
and thus was held guilty by the Council under Clauses (5), (6), (7)
and (8) of Part I of the Second Schedule which was accepted by
the High Court.
(Thampy Mathews,Dy. General Manager, IIBI Vs. R.K. Tayal, Delhi
- Page 254 of Vol. IX–1–21(6) Decision of the Council on 25th
June, 2004, 243rd Meeting of the Council and Judgement of High
Court dated 23rd July, 2007).
Clause (6): fails to report a material misstatement known to him to
appear in a financial statement with which he is
concerned in a professional capacity;
This clause refers to failure on the part of a member to point out in

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his report a material mis-statement appearing in a financial statement
and he has knowledge of the same. Here also, it is obvious, that
before a member could be held guilty of misconduct, materiality has to
be established and the observations made under the preceding Clause
(5), in this connection, will equally apply to this Clause.
The decisions of the Courts on this clause are briefly given below:
A Company did not provide for depreciation as required by Section
205 and Section 250 of the Companies Act, 1956 and although the
Chartered Accountant was aware that the Company had under-
provided depreciation, he did not bring out this fact in his report. -
Held the Chartered Accountant was guilty of professional
misconduct under the clause. He had failed to disclose a material
fact known to him but disclosure of which was necessary to make
the financial statement not misleading.
A Chartered accountant was charged under Clauses (5) and (6) for
failure to report that there was a reduction of capital with
corresponding reduction in the loans and advances on the assets
side, which contravened Section 59 of the Travancore Companies
Act and Form F prescribed under the Act. There was also a failure
on his part to report on the non- disclosure of the forfeiture and
cancellation of share. - Held the Respondents conduct was not
proper.
(Registrar of Joint Stock Companies vs. S.S. Iyer - Page 94 of Vol.
IV of the Disciplinary Cases and pages 405-408 of April, 1960
issue of the Institute’s Journal - Judgement delivered on 25th
January, 1960).
A Chartered Accountant failed to disclose a mis-statement or
under-statement by the Company in the balance sheet of its
liabilities, which amounted to a suppression of the correct state of
affairs. He also failed to report a material mis-statement by the
Company in not giving the previous years figures in the
corresponding column of the balance sheet. Held he was guilty of
professional misconduct under Clauses (6) and (7).
(Registrar of Companies, Bombay vs. V.P. Bagadthey - Page 210
of Vol. IV of the Disciplinary Cases and pages 80-82 of August,
1961 issue of the Institute’s Journal - Judgement delivered on 24th
March, 1961).
Where a Chartered Accountant prepared a balance sheet of a firm
and subsequently prepared a statement regarding the state of
affairs of the firm without taking into account the balance sheet

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already prepared by him showing a lesser amount by way of
opening stock and a lesser amount to the credit of the proprietor
and subsequently when he was called upon by his client to prepare
a fresh balance sheet and profit and loss account for the same
year so that it should tally with the statement of affairs prepared by
him he did so without reference to the actual account books but on
instructions of the client, and as such it was a false and incorrect
balance sheet. Held, he was guilty under Clauses (5) & (6).
(Attorney General of Kenya vs. V.B. Joshi - Page 688 of Vol. IV of
the Disciplinary Cases and page 681 of June, 1968 issue of the
Institute’s Journal - Judgement delivered on 19th February, 1968.).
Where a Chartered Accountant had issued publishers certificates
of circulation in disregard of the Complainants Rules which he had
undertaken to comply with -Held he was guilty under clauses (5),
(6) & (9) of Part I of the Second Schedule.
(Audit Bureau of Circulations vs. V.I. Oommen - Page 51 of Vol.VII
(1) of disciplinary cases - judgement dated 6th October, 1995)
Where a Chartered Accountant had issued a false Certificate,
certifying existence of assets created by a company, on the basis
of which a Financial Corporation released a sum of Rs.4.65 lakhs
to the said Company. The Respondent, it was alleged, had certified
that the Company had invested Rs.5,04,424/- whereas on
inspection by officers of the Corporation, it was found that the
investment by the Company was only to the extent of Rs.58,169/-.
Held that the Respondent was guilty of professional misconduct
under Clause (5), (6), (7) and (8) of Part I of the Second Schedule.
(Deputy General Manager, Rajasthan Financial Corporation, Pali
vs. C.K. Vyas – Page 321 of Vol. VIII – 1 – 21(6) of Disciplinary
Cases – Judgement delivered dated 29th November, 2003)
Where a chartered accountant failed to bring attention to the heavy
cash transaction entered into by the assessee in his audit report
submitted in Form 3CD in terms of section 44AB of the Income Tax
Act, 1961 for the Assessment year 1988-89. Held that the
respondent was guilty of professional misconduct within the
meaning of Clauses (5), (6), (7) and (8) of part I of the second
schedule to the Chartered Accountants Act, 1949 in terms of
section 21 read with section 22 of the said Act.
(V.C.Agarwal in Re:- Page 768 of Vol. VIII – 1 – 21(6) of
Disciplinary Cases- Judgement dated 13th August, 2004).
A Chartered Accountant issued certificates certifying the utilization

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of funds by the Company for the amount granted and disbursed by
a bank without verifying the records properly before issuing the
aforesaid certificates. Also, the said certificate did not reflect the
end use of the funds. He was grossly negligent in issuing the said
certificate(s). The auditor knowingly certified the end use of money
received by the auditee incorrectly and improperly which is
undoubtedly an un-pardonable act on the part of the Respondent
and thus was held guilty by the Council under Clauses (5), (6), (7)
and (8) of Part I of the Second Schedule which was accepted by
the High Court.
(Thampy Mathews,Dy. General Manager, IIBI Vs. R.K. Tayal -
Page 254 of Vol. IX – 1 – 21(6) Decision of the Council on 25th
June, 2004, 243rd Meeting of the Council and Judgement of High
Court dated 23rd July, 2007).
A Chartered Accountant wrote the books of account of the
Complainant Association apart from conducting the audit. While
preparing and auditing the accounts, he did not comply with the
decision of the Complainant Association taken in its Annual
General Body Meeting, thereby being grossly negligent in his
conduct. He neither ensured nor qualified his report regarding non-
provision of various liabilities in the accounts such as salaries and
wages, electricity charges, water charges etc., which again shows
that he was grossly negligent in the discharge of his duties as
Chartered Accountant and Auditor. None of the figures in the
Balance Sheet and Income & Expenditure Account of the
Complainant-Association for the year 1998-99 certified by him
tallied with the balances in the unauthenticated Cash Book and
Ledger. He further did not prove the accuracy of the accounts
prepared and audited by him nor furnished details of various items
appearing in the statements certified by him. The Council held him
guilty under Clauses (6), (7), (8) & (9) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 and also guilty of
“Other Misconduct” under Section 22 read with Section 21 of the
Chartered Accountants Act, 1949.
The High Court also accepted the decision of the Council.
(Hon. General Secretary, Rohit House Occupants Welfare
Association, New Delhi vs. K.K. Gupta - Page 299 of Vol. IX – 1 –
21(6), Decision of the Council dated 22nd
July, 2004, 244th Meeting
of the Council and Judgement of High Court dated 25th
September, 2007).

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Clause (7): does not exercise due diligence, or is grossly negligent in
the conduct of his professional duties;
Though very simply worded, it is a vital clause which unusually
gets attracted whenever it is necessary to judge whether the
accountant has honestly and reasonably discharged his duties.
Diligence means care; caution; attention and care required from a
person in a given situation and the expression ‘due diligence’ means
the diligence reasonably expected from, and ordinarily exercised by, a
person who seeks to satisfy a legal requirement or to discharge an
obligation. A member should maintain updated knowledge and skill
well performing his professional works which is based on the
knowledge of appropriate/applicable legislations of the industry in
which the client operates its activity. The member should also act
diligently in accordance with applicable technical and professional
standards. Diligence encompasses the responsibility to act in
accordance with the requirements of an assignment carefully and
thoroughly. The expression ‘negligence’ covers a wide field and
extends from the frontiers of fraud to collateral and minor negligence.
The meaning and significance of this clause is well contained in the
following passage quoted from the judgement of the Karnataka High
Court in a disciplinary case of B. Shantaram Rao in Re page 168 Vol-V
of Disciplinary cases in 1977.
“It is the duty of an auditor to bring to bear on the work he has to
perform that skill, care and caution which a reasonably competent,
careful, and cautious auditor would use. What is reasonable skill, care
and caution must depend on the particular circumstances of each
case. An auditor is not bound to be a detective, or, as was said, to
approach his work with suspicion or with a foregone conclusion that
there is something wrong. He is a watch-dog but not a blood-hound. If
there is anything calculated to excite suspicion he should probe it to
the bottom; but in the absence of anything of that kind he is only bound
to be reasonably cautious and careful.”
What constitutes professional misconduct
Professional misconduct on the part of a person practising one of
the technical professions cannot fairly or reasonably be found
merely on a finding of a bare non-performance of a duty or some
default in performing it. The charge is not one of inefficiency but of
misconduct. Imputation of certain mental condition is always
involved. The test must always be whether in addition to the failure
to do the duty, there has also been a failure to act honestly and
reasonably.

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(S. Ganesan vs. A.K. Joscelyne - Page 39 of Vol. III of the
Disciplinary Cases and pages 43-56 of July, 1956 issue of the
Institute’s Journal - Judgement delivered on 19th April, 1956).
The misconduct implies failure to act honestly and reasonably
either according to the ordinary and natural standard or according
to the standard of a particular profession.
(Registrar of Companies, Bihar vs. M.N. Basu - Page 323 of Vol. IV
of the Disciplinary Cases and pages 523-526 of June, 1963 issue
of the Institute’s Journal-Judgement delivered on 7th December,
1962).
Professional misconduct is a term of fairly wide import but
generally speaking, it implies fairly serious cases of misconduct of
gross negligence. Negligence per se would not amount to gross
negligence. In the case of minor errors and lapses, which do not
constitute professional misconduct and which, therefore, do not require
a reference to the Director, Board of Discipline and the Disciplinary
Committee. Nevertheless the matter is to be brought to the attention of
its members so that greater care may be taken in the future in avoiding
errors and lapses of a similar type.
The decisions on this clause are briefly mentioned below:
Where a Chartered Accountant signed two Balance Sheets on two
different dates for the same financial year, the first one without
qualification and the later one with a qualification, but admitted
having signed only one Balance Sheet, i.e., the later one in the
criminal proceedings against him, the Council found that the
second Balance Sheet was a fabrication and that the statement
before the Magistrate was false. - Held the first charge, viz.,
fabrication, failed in the absence of evidence and the second
charge, viz., false statement, also failed as the falsity of the
statement in the witness box could not give rise to any disciplinary
proceedings against him as his conduct or action must be qua his
profession or in the course of carrying on that profession. The High
Court, however, found him guilty in respect of the first Balance
Sheet for certifying it knowing fully well, that it did not represent the
correct state of affairs of the Company and also for signing the
Balance Sheet under an earlier date, while his report, on his own
admission, was on a later date.
(Govind Piraji Uplap vs. G.M. Oka - Page 20 of Vol. 1 of the
Disciplinary Cases and pages 37-40 of July, 1952 issue of the
Institute’s Journal-Judgement delivered on 18th March, 1952).

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Where a Chartered Accountant furnished a certificate under
Section 27 of the Insurance Act that there was no charge on the
securities held as investments by way of loan or overdraft while, as
a fact, one of the securities had been sold and the proceeds
thereof utilised for the discharge of a loan. -Held he was guilty of
misconduct.
(G.M. Oka in Re. - Page 35 of Vol. 1 of the Disciplinary Cases and
pages 40-42 of July, 1952 issue of the Institute’s Journal-
Judgement delivered on 19th March, 1952).
Where a Chartered accountant failed to indicate the mode of
valuation of investments in shares as required by the Companies
Act and also to draw attention to the inclusion of uniforms in the
depreciation account. - Held that he was guilty under Clause (7).
(M.C.Poddar vs. P.S. Sodhbans - Page 259 of Vol. I of the
Disciplinary Cases and page 554 of May, 1954 issue of the
Institute’s Journal -Judgement delivered on Ist April, 1954).
Where a Chartered Accountant, in a bank audit reported to the
shareholders that he had not verified the cash on hand and that he
had also signed the balance sheet in anticipation of the receipt of
confirmation letters from the banks in respect of the cash said to be
lying with them and failed to report on the weakness of the banks
financial position. -Held that he was guilty of the first and third
charges falling under Clause (7). Verification of cash was an
essential duty of an auditor which he failed to discharge and in
signing the report in anticipation of receiving the confirmation
letters from banks, he had failed to perform his duties with the
requisite skill and diligence.
(S.N.Das Gupta in Re:- Page 57 of Vol.II of the Disciplinary Cases
and pages 80-92 of September, 1955 issue of the Institute’s
Journal -Judgement delivered on Ist August, 1955).
Where a Chartered Accountant was appointed auditor of a Co-
operative Society, it was alleged that he took active part in the
Management of the Society and issued false certificates regarding
the verification of cash on hand. - Held that there was nothing
unprofessional in helping the administration of the Society by
rendering occasional services. As regards the issue of the false
certificate, he was found guilty of misconduct.
(Paradise Co-operative Housing Society Ltd., Bombay vs. R.
Viraswami - Page 1 of Vol. III of the Disciplinary Cases and pages

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87-88 of August, 1956 issue of the Institute’s Journal - Judgement
delivered on 24th November, 1955).
Where a Chartered Accountant certified the circulation of a
newspaper based on the statistical record but stated in his
certificate that he had given it after examination of the books of
account without verifying that the books of account and the
statistical records agreed and also without taking into account the
return of copies unsold. - Held that he was guilty of gross
negligence.
(V.K. Madhava Rao in Re:- Page 21 of Vol.III of the Disciplinary
Cases and pages 88-92 of August, 1956 issue of the Institute’s
Journal - Judgement delivered in 17th April, 1956).
Where a certificate issued by a Chartered Accountant under
Regulation 7(c) & 7(d) (i) of Part I of the First Schedule to the
Insurance Act, 1938 was not correct, as the Company had granted
loans on policies which had already lapsed for non-payment of
premia and also the claims in respect of two policies which had
matured were not included in estimated liability in respect of
outstanding claims shown in the Balance Sheet. -Held he was
guilty under Clauses (7) and (8).
(Controller of Insurance vs. H.C. Das - Page 240 of Vol.III of the
Disciplinary Cases and page 422-429 of March, 1957 issue of the
Institute’s Journal - Judgement delivered on 4th January, 1957).
Where a Chartered Accountant, appointed as auditor of the
Madras branch of a limited Company at Bombay, was charged with
failure to report to the Bombay Office that some entries in the bank
pass book have not been passed through the cash book of the
branch. - Held he was guilty of gross negligence. The High Court
observed that a small fee paid to the Respondent should not come
in the way of his doing his duty without fear or favour, although it
involved unpleasant consequences, namely, he might not be
appointed again.
(The Fairdeal Corporation Ltd. Bombay vs. K.Gopalakrishna Rao -
Page 361 of Vol. III of the Disciplinary Cases and pages 196-203
of Oct. 1957 issue of the Institute’s Journal - Judgement delivered
on 23rd August, 1957).
A Chartered Accountant was charged under Clauses (5), (6), (7)
and (8) of Part I of Second Schedule in regard to a loss of Rs. 1.84
lakhs in a bank of sale of some investments out of which only a
sum of Rs. 21,500 was written off by the bank. The value of

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investment in the balance sheet was inflated and it did not exhibit
the correct position and the profit and loss account did not show a
true balance of profit and loss. Held, the Respondent was guilty of
conduct so as to render him unfit to be a member of the Institute.
(B.V. Warerkar in Re:- Page 448 of Vol.III of the Disciplinary Cases
and pages 470-472 of January, 1958 issue of the Institute’s
Journal - Judgement delivered on 9th December, 1957).
A certificate issued by a Chartered Accountant to a proprietor of a
firm in respect of the turnover of betelnuts to enable the firm, which
was not dealing in betel nuts, to obtain import licence without
checking the books and documents himself, but relying on his
articled clerk for its correctness. - Held he was guilty of gross
negligence.
(Sunderlal Fatehpuria in Re:- Page 591 of Vol.III of the Disciplinary
Cases and page 224 of January, 1959 issue of the Institute’s
Journal - Judgement delivered on 14th November, 1958).
Where a Chartered accountant failed in his duty to check the bank
balances with the pass books of the banks and failed to obtain
certificates of balances from the bankers in respect of those
balances, the Council found him guilty of misconduct under
Clauses (7) and (8) of Part I of the Second Schedule - Held there
being no proof of dishonesty or malafide on the part of the
Chartered Accountant and in view of the circumstances of the
case, the High Court took no more serious view of the matter than
to express disapprobation of the conduct of the Chartered
Accountant in the form of an admonition.
(Deptt. of Economic Affairs vs. D.B.Kulkarni - Page 185 of Vol.IV of
the Disciplinary Cases and pages 410-412 of April, 1960 issue of
the Institute’s Journal - Judgement delivered on 1st March, 1960).
In the course of some investigation of the affairs of a bank on
liquidation, it was found that the authorities of the bank failed to
disclose the total indebtedness of the directors in the balance
sheet and to report on the numerous alterations and fictitious
entries in the books of account of the bank. -Held that no auditor
could escape from personal liability by taking shelter under the
misconduct of his own employees. There was nothing to indicate
the status, qualifications or capacity of the assistants. Under the
circumstances, the conduct of the Chartered Accountant in
abdicating his functions to his subordinates amounted to gross
negligence.

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(Superintendent of Police Madras vs. M.Rajamany - Page 232 of
Vol. IV of the Disciplinary Cases and page 27-29 of July, 1961
issue of the Institute’s Journal - Judgement delivered on 5th May,
1961).
On the basis of the investigation report on the affairs of a Company
by an Inspector appointed by the Government, the auditor of the
Company was charged with failure of duty in not carrying out a
complete audit, verify the assets and liabilities in the Balance
Sheet and report on the objectionable vouchers. - Held that he was
guilty of gross negligence. The case was one of inefficiency, as
there was no suggestion of any moral turpitude. He should not
have taken into account the Social position of those in
management while discharging his duties as an auditor.
(Registrar of Companies, Kerala State vs. P. Arunajatai - Page 262
of Vol. IV of the Disciplinary Cases and pages 102-104 of
September, 1962 issue of the Institute’s Journal - Judgement
delivered on 26th June, 1962).
Where a Chartered Accountant failed to report on the over-
payment of remuneration to the managing agents of a Company,
which contravened Section 18(2) and Section 87CC, of the Indian
Companies Act, 1913 and was, therefore, not in accordance with
law. - Held he was guilty under Clauses (5), (7) and (9).
(B.K.Ray in Re:- Page 300 of Vol.IV of the Disciplinary Cases and
pages 521-523 of June, 1963 of the Institute’s Journal -Judgement
delivered on 30th November, 1962).
Where a certificate issued by a Chartered Accountant to the Joint
Chief Controller of Imports & Exports, Calcutta stating that a firm
had exported a certain quantity of onions during a certain period
contained false and inaccurate particulars in respect of three items
of invoice value the particulars themselves related to exports not
by this firm but by two other firms. - Held he was guilty of the
charge of gross negligence.
(The Chief Controller of Exports vs. G.P.Acharya - Page 311 of
Vol.IV of the Disciplinary Cases and pages 189-194 of September,
1963 issue of the Institute’s Journal - Judgement delivered on 30th
November, 1962).
Where a Chartered Accountant signed the accounts of an
institution subject to separate notes. -Held he was guilty of gross
negligence. In the view of the High Court, the essential part was
the separate notes. Any one going through his report would at least

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assume that those notes were prepared and were ready at the time
when the report was signed by him. It could not be supposed that
those notes were not in existence at that time and were written at
some later date on some facts which were still to be verified or
ascertained. His act, though not suffering from bad or vicious
intention, was still an act of gross negligence.
(Hitkarini Mahavidyalaya, Jabalpur vs. P.C. Madan - Page 341 of
Vol. IV of the Disciplinary Cases and pages 29-31 of July, 1963
issue of the Institute’s Journal - Judgement delivered on 11th April,
1963).
On the basis of the investigation report on the affairs of a Company
by an inspector appointed by the Government, the auditor of that
Company was charged with failure of duty in not carrying out a
complete audit, verify the assets and liabilities in the balance sheet
and report on the objectionable vouchers. -Held, he was guilty
under Clause (7)
(Registrar of Companies, Kerala State vs. T.S. Vaidyanath Iyer -
Page 349 of Vol.IV of the Disciplinary Cases and pages 187-189 of
September, 1963 issue of the Institute’s Journal - Judgement
delivered on 22nd, July 1963).
Gross Negligence and failure to obtain sufficient information to
warrant the expression of an opinion.
The Disciplinary Committee having found that the main charges as
set out in the information letter were not substantiated if proceeded
with two new charges and found the Respondent guilty under
clauses (7) and (8) and for failure (a) to invite attention to omission
in the balance sheet about information relating to the maximum
amount due from the directors and from the Companies under the
same management and (b) to carry out the statutory duty to obtain
sufficient information before making his report inspite of it having
been brought to his notice by his assistants that there was
difference in the Trial Balance prepared by the Company. Held in a
matter like this brought out during the proceedings in examination
of the Respondent without it having been made the subject matter
of a clear and specific charge to the knowledge of the Respondent
with an opportunity to meet the same and to disprove the same,
cannot be, either according to the provisions of the statute or
having regard to the principals of natural justice, the basis for an
adverse finding against the Respondent.
(V.K. Verma in Re:- Page 425 of Vol.IV of the Disciplinary Cases

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and pages 465-471 of February, 1966 issue of the Institute’s
Journal - Judgement delivered on 21st September, 1964).
Where a Chartered Accountant had been extremely negligent and
careless in not attaching due importance expected of a
professional man to the factor of delay in the matter of preparation
of the Profit and Loss Account and the Balance Sheet of his client.
- held he was guilty of misconduct.
(Sterling Electrical Traders Corporation Pvt. Ltd. vs. S.L. Batra -
Page 590 of Vol. IV of the Disciplinary Cases and pages 810-820
of June, 1967 issue of the Institute’s Journal - Judgement delivered
on 2nd March, 1967).
Where a Chartered Accountant gave clean reports on the balance
sheets whereas the reports on the special audit conducted
subsequently revealed certain irregularities which amounted to
failure to examine the pass book and to verify the cash balance. -
Held - he was guilty under Clause (7).
(Director of Accounts, Gujarat State, Ahmedabad vs. K.D. Patel -
Page 636 of Vol. IV of the Disciplinary Cases and page 572 of
April, 1968 issue of the Institute’s Journal - Judgement delivered
on 16th February, 1968).
Where a Chartered Accountant failed to make a reference in the
Income Certificates prescribed by the ABC to the report which he
had separately submitted to the newspaper concerned which did
represent the correct state of affairs in all respects but which was
not sent by the newspaper to the Bureau - Held, he was guilty
under Clauses (7) and (9).
(Audit Bureau of Circulations Ltd. vs. A.D. Shinde - Page 725 of
Vol. IV of the Disciplinary Cases and page 627 of May, 1968 issue
of the Institute’s Journal - Judgement delivered on 26th February,
1968).
Where a Chartered Accountant had placed implicit reliance on his
paid assistant who took absolutely no step whatsoever to check
the cash balances facilitating and resulting in serious defalcations.
- Held he was guilty under Clauses (5), (7), (8) and (9).
(D.C. Sopariwala in Re:- Page 783 of Vol. IV of the Disciplinary
Cases and pages 502-504 of March, 1969 issue of the Institute’s
Journal - Judgement delivered on 27th November, 1968).
Where a Chartered Accountant had not completed his work
relating to the audit of the accounts of a Company and had not

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submitted his audit report in due time to enable the Company to
comply with the statutory requirements in this regard. Held, he was
guilty of professional misconduct under Clause (7).
(Qaroon Trading & Finance Pvt. Ltd. vs. Laxmi Narain Saxena and
Jitendra Mohan Chadha - Page 828 of Vol. IV of the Disciplinary
Cases and pages 47-49 of July, 1969 issue of the Institute’s
Journal - Judgement delivered on 12th February, 1969).
Where a Chartered Accountant had certified the circulation claim of
a periodical which was practically not published. - Held he was
guilty by the Council under Clause (7). However on being reported
that the member was dead the High Court dismissed the reference
being infructuous.
(Registrar of Newspapers for India vs. V. Ramaratnam - Page 877
of Vol. IV of the Disciplinary Cases - Judgement delivered on 9th
September, 1970)
Where a Chartered Accountant failed to exercise sufficient care
and diligence in the discharge of his professional responsibilities in
not checking the cash memos and not verifying the alterations in
the trial balance with the original books in respect of one Company
and in not checking the journal entries and the final figures of the
balance sheet with the general ledger in respect of another
Company. - Held, he was guilty under Clause (7).
(Messrs. O.M. Agency Private Ltd. & Messrs. Oriental Mercantile
Distributors Private Ltd. vs. M. Surendra Sastry - Page 891 of Vol.
IV of the Disciplinary Cases and pages 452-455 of November,
1971 issue of the Institute’s Journal - Judgement delivered on 21st
April, 1971).
Where a Chartered Accountant issued two different certificates of
circulation of a daily for one and the same period showing different
figures in respect of the number of copies printed and circulated, -
Held, he was guilty under Clauses (7) and (8).
(Registrar of Newspapers for India vs. P.K. Mukherji - Page 937 of
Vol. IV of the Disciplinary Cases and pages 615-617 of January,
1972 issue of the Institute’s Journal - Judgement delivered on 20th
August, 1971).
A Chartered Accountant was found guilty of professional
misconduct under Clauses (5), (6), (7) & (9) of Part I of the Second
Schedule on the following grounds:
(1) that he failed to point out the contravention of Note (C) to

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Schedule VI of the Companies Act, that is, the requirement
in the case of a subsidiary Company that the number of
shares held by the holding Company as well as by the
ultimate holding Company and its subsidiaries must be
separately stated;
(2) that he failed to point out the contravention of Part I Form of
Balance Sheet Schedule VI, that is share capital issued in
pursuance of a contract without payment being received in
cash and shares allotted as fully paid up by way of bonus
shares should have been shown separately;
(3) that he failed to point out, in his report, that the Company, of
which he was the auditor, was a public limited Company or
deemed to be a public limited Company by virtue of Section
43A of the Companies Act;
(4) that he failed to comment in his report on the debit balance
in the current account with managing agents, in accordance
with Section 369 of the Companies Act;
(5) that he failed to report the non-maintenance of the contract
register required to be maintained under Section 360(3); and
(6) that he failed to report the money value of the contract for
the supply of service with the associates of managing
agents as required under Schedule VI Part I.
(Registrar of Companies, West Bengal vs. V.V. Bapat - Page 8 of
Vol. V of Disciplinary Cases and Page 281 of December, 1974
issue of the Institute’s Journal - Judgement delivered on 21st
August, 1974).
A Chartered Accountant had failed to detect a fraud committed by
the accountant of a canteen which could have been detected if he
had checked the castings of the cash books and also checked the
contra entries of the bank and cash columns of the cash book. -
Held, he was guilty of professional misconduct under Clauses (7),
(8) and (9).
(Air Commodore Dilbagh Singh vs. C.G. Apte - Page 107 of Vol. V
of the Disciplinary Cases and page 224 of September, 1976 issue
of the Institute’s Journal - Judgement delivered on 5th July, 1976).
In his audit report of a school, the auditor failed to point out wrong
and misleading entries and a sum of Rs. 7,000/- on account of
reserve fund did not find a place at all in the original statement sent
to the school. The correction slip alleged to be sent by the

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Chartered Accountant was never received by the school. The
Chartered Accountant had not proved that the correction slip was
sent to the school. - Held, the Chartered Accountant was guilty of
gross negligence in the conduct of professional duties and his
conduct was quite unbecoming of a professional person entrusted
with responsibility of dealing with the accounts.
(B.L. Choudhury vs. M.K.Deb - Page 121 of Vol. V of the
Disciplinary Cases and pages 196-198 of March, 1977 issue of the
Institute’s Newsletter - Judgement delivered on 3rd November,
1976)
A Chartered Accountant, without examination of stock register of
the firm and without examining other relevant matters connected
with the certificate, issued wrong consumption certificate in respect
of raw material and components on the basis of which, licence of
higher value, for which the unit was not entitled, was issued by the
Deputy Controller of Imports and Exports - Held, the Chartered
Accountant was guilty of gross negligence under the Clause (7).
(T.S. Vaidyanatha Iyer in Re:- Page 153 of Vol. V of the
Disciplinary Cases and pages 211-212 of April, 1977 issue of the
Institute’s Newsletter - Judgement delivered on 27th January,
1977).
A Chartered Accountant adopted arbitrary valuation of closing
stock and no verification at all was done by him. Further he
accepted the capitalisation of a large sum of expenditure which
was in the nature of revenue. He had merely adopted an adhoc
basis in deciding upon capitalisation of expenditure and failed to
apply his mind and bring to bear on the subject the due diligence
and care expected of a member of the profession. - Held, the
Chartered Accountant was guilty of gross negligence in the
performance of his duties.
(B. Shantharam Rao in Re:- Page 168 of Vol. V of the Disciplinary
Cases and pages 241-243 of May, 1977 issue of the Institute’s
Newsletter - Judgement delivered on 13th/18th February, 1977).
A member was found guilty under this Clause (7) in the following
circumstances:-
(1) That he had indicated in his audit report that there was
inadequate provision for depreciation but had not disclosed
in his audit report the extent of arrears of depreciation.
(2) He had not dealt with in his audit report, the facts of arrears
of depreciation and the dividend recommended in the

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context of the provisions of Section 205 of the Companies
Act.
(3) He had not dealt with in the audit report, the implications of
the provisions of the Companies (Temporary Restrictions on
dividends) Act, of 1974 which was then in force at the time.
(4) The above omissions represented significant defects of
substance and the member has failed to act in the
discharging of his duties reasonably though his honesty was
not in question.
(Registrar of Companies, West Bengal vs. R.K. Gangopadhyay -
Page 202 of the Vol.VI(1) of Disciplinary Cases - judgement dated
7th January, 1981).
The Chartered Accountant relied upon the internal control without
satisfying himself about the propriety and surrendered to the
pressure of management and certified the accounts without
examining and getting necessary clarification. - Held that he was
guilty of misconduct.
(B.L. Purohit vs. J.N. Chandak, decided on 10th December, 1980
Page 175 of Vol.VI of the Disciplinary Cases. The Institute’s
Journal March, 1981 pages 703-11).
A member had issued certificates in regard to consumption of
materials and book value of production in connection with an
application for import which was later found to be false. He was
found guilty of gross negligence by the Council which finding was
confirmed by High Court with the following observations:-
(a) The member was unable to produce any working papers or
any evidence of the work done by him.
(b) Evidence showed that he had not himself examined the
records. Even if he had examined the records, he could not
confirm the accuracy of the figures.
(c) He had not examined the Exchange Control copy of the
licence without the examination of which the certificates
could not have been issued.
(d) There need not be element of dishonesty on the part of a
member in case of gross negligence.
(C.S. Hariharan page 265 Vol.-VI-1-21(6) and S.B. Pathak in Re.
page 272 Vol.-VI-21(6))
A member in practice, while auditing the accounts of a hospital

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committed the following mistakes:-
(a) Repayment of loan of Rs.2,940/- to the Trustees had not
been entered in the Receipts and Payment Accounts though
shown in the Cash Book and Ledger. This was explained as
an inadvertent omission.
(b) Professional fee of Rs.450/- paid to an Advocate was found
to be bogus and no voucher was available. The member
had not verified the vouchers and no explanation was given
by the member.
(c) Stock of medicines as on 31.3.73 and 31.3.74 was shown
as identical figures and no verification of the stock of
medicine or stock register or other records had been made.
(d) The cash balance in cash book was different from that
shown by the balance-sheet. The cash balance was not
admittedly verified during audit nor any written confirmation
regarding cash had been obtained.
(e) The figures of the amount of grant as shown by the books
and the Income and Expenditure statement differed and the
explanation given by the member was found neither true nor
reasonable.
(f) The High Court held that the member was guilty of gross
negligence in so far as he has not exercised due care and
caution which is expected of a Chartered Accountant.
(P.D.J. Solomon vs. L.A. Patnaik - Page 334 of Vol.VI(1) of
Disciplinary cases - judgement dated 23rd January, 1984).
Where the Respondent had issued the consumption certificate of a
firm against the SSI application submitted by the above firm which
did not maintain stock, consumption and production records and
the amount certified by the Chartered Accountant in the licencing
application was fictitious. -Held that the Respondent was guilty of
gross negligence.
(The Joint Chief Controller of Imports and Exports, Calcutta vs.
Barun Ray - Page 525 of Vol.VI(1) of Disciplinary cases -
Judgement dated 15th November, 1989).
Where a Chartered Accountant had issued a false consumption
certificate to a non-existent firm for submission before the Chief
Controller of Imports and Exports, on the basis of which an import
licence of a higher value was issued to the firm. -Held that the
member was guilty of gross negligence.

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(Tapas Chakrabarti in Re:- Page 539 of Vol.VI(1) of Disciplinary
cases - judgement dated 7th February, 1990)
Where a Chartered Accountant had issued two sets of certificates
for the export of marine products, the first one stating that the
exports were effected in one year and the second one stating that
some products were exported in 3 different years, he had not
properly checked the yearwise figures of exports while issuing the
two different sets of certificates. -Held that he was guilty of gross
negligence.
(Govind Kanodia in Re:- Page 553 of Vol.VI(1) of Disciplinary
cases - judgement dated 7th February, 1990).
Where a Chartered Accountant was charged with gross negligence
and breach of trust in the course of his professional services
rendered to the Complainant in computation of accounts and
income-tax matters. -Held that he was guilty under Clause (7).
(S. Sarkar vs. K.K. Mullick - Page 593 of Vol.VI(1) of Disciplinary
cases - judgement dated 12th April, 1990)
Where a Chartered Accountant had certified the sale value of a
production of a firm which was fictitious and the certificate given by
the Chartered Accountant was without proper verification and on
the basis of false documents/account books etc. -Held that the
Chartered Accountant was guilty under this Clause.
(Jt. Chief Controller of Imports & Exports vs. Ananda Murthy, FCA -
Page 606 of Vol.VI(1) of Disciplinary cases - judgement dated 7th
June, 1990)
Where the Chartered Accountant had issued a fictitious certificate
of purchase turnover of books to a firm. -Held that the member was
guilty under Clause (7).
(The Joint Chief Controller of Imports & Exports vs. B.K. Nagraj -
Page 645 of Vol.VI(1) of Disciplinary cases - judgement dated 10th
January, 1991).
Where the Complainant had sanctioned an additional loan to a
Company on the basis of a proforma balance sheet duly certified
by a Chartered Accountant while the audited balance sheet of the
Company for the same period duly certified by the statutory
auditors revealed a completely different picture. Held that the
Chartered Accountant was guilty under clauses (7) & (8).
(Assam Financial Corporation vs. S.K. Beria – Page 17 of Vol.VII
(1) of Disciplinary Cases - Judgement dated 10th July, 1992)

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The opening and closing stock of tea as well as turnover of tea
were not correctly reflected in the Profit and Loss Account and/or
Notes on Accounts of a tea Company for the years 1982, 1983 and
1984. It was alleged that the Respondent had failed to bring out
these material discrepancies in his reports in the relevant years
accounts. The Council found him guilty under Clauses (7) & (8)
and decided to recommend to the High Court that he be
reprimanded. After analysing facts of the case and various judicial
pronouncements in detail, the High Court was of the opinion that it
was not a fit case where the alleged misconduct on the
Respondent demanded imposition of any punishment.
(The Regional Director, Ministry of Industry, Department of
Consumer Affairs, Calcutta vs. Inderjit Roy – Page 218 of Vol.
VII(1) of the Disciplinary Cases - Judgement dated 19th March,
1999)
The Respondent had certified a profit and loss account wherein the
total expenditure was shown at Rs. 3,19,163.55 but the correct
amount of total expenditure worked out to Rs. 2,19,163.55 only.
Accordingly, the total expenditure had been over-stated by rupees
one lakh and instead of a profit, a loss of Rs. 153.38 appeared in
the said profit and loss account. The correct position was that there
was a net profit of Rs. 99,846.62 (Rs. 1 lakh minus 153.38). The
Council took into consideration two reports of the Disciplinary
Committee viz. majority report and dissenting report by one
member. Agreeing with the majority report, the Council was
satisfied that on the facts of the case, the aforesaid difference was
a very material difference. The Council also noted the admitted
position that no reconciliation of capital account was made by the
Respondent which could have enabled him to discover the error.
The Respondent had taken the plea that he did not conduct the
audit and his certificate only stated that the said profit and loss
account was prepared from the books of account. The Council was
of the view that when a Chartered Accountant prepares a profit and
loss account from the books of account and signs the certificate to
that effect, he is expected to verify the accuracy of the figures
appearing in the profit and loss account with reference to the
relevant books of account and he cannot escape the responsibility
in this behalf by pleading that he did not conduct the audit. The
Council also found that though the Chartered Accountant was
entitled to place reliance upon the work of his assistants, he had a
professional duty and responsibility for the certificate signed by him
and he must take reasonable steps to satisfy himself that the work

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has been carried out in a proper and efficient manner. Considering
the facts of the case, the Council found that the mistake of Rs. 1
lakh in total figure of Rs. 3,19,163.55 was not only material but also
very substantial. He was held guilty under this clause.
(Commissioner of Agricultural Income-tax vs. T.S. Ranganathan –
Page 266 of Vol. VII(1) of Disciplinary Cases - Judgement dated
9th February, 2000)
The Respondent had certified an application by a Company in
accordance with the requirements of Import and Export Policy,
certifying the F.O.B. value of exports at Rs.4,44,77,996/- instead of
the correct figure of Rs.4,14,69,925/-. It was held that the
Respondent had not exercised due care and skill which he should
have done while discharging his professional duties and should
have indicated the correct figure. He was held guilty under this
clause.
(B.L. Khanna in Re:- Page 372 of Vol. VII(1) of Disciplinary Cases
– Council’s decision dated 8th, 9th & 10th April, 1987 - Judgement
dated 5th September, 2000).
The Respondent was entrusted with the work of incorporation of a
Company. He was also entrusted with the work of filing the return
for registration of the charge in Form No.8 with Registrar of
Companies. After making enquiries, he made available a certificate
of incorporation issued by the Registrar of Companies. But on
enquiry from the Office of the Registrar of Companies, it was learnt
that the name of the said Company, was not borne on the Register
of Companies and Form No. 8 was not traceable in the Registrars
office. He was, inter alia, held guilty under this clause.
(Deepak Pahwa vs. A.K. Gupta - Page 346 of Vol. VII(1) of
Disciplinary Cases - Council's decision dated 6th December, 1995
- Judgement dated 4th September, 2000).
The Respondent failed to appear before the ITO in response to the
notice under Section 143(2) and 142(1) of the Income Tax Act for
A.Y. 1988-89 on behalf of the client despite adjournments
granted/postponements of dates of hearing made by the
Department, resulting in the assessment being made ex parte
under Section 144 of Income Tax Act, 1961. The Respondent
failed to appear before the CIT (Appeals) before whom an appeal
against the said ex parte order of ITO had been filed, resulting in
the dismissal of the appeal. The Respondent confirmed to the
Complainant by informing her that stay of demand applied for had

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been granted whereas the fact was that the Complainant was
served with a demand notice for payment, failing which recovery
proceedings would be initiated. An appeal to be filed before the
Tribunal against the order of CIT (Appeals) was got signed from
the complainant. Later on, it was found and admitted by the
Respondent that no such appeal was filed. Even the amount paid
as appeal fee was not refunded. Respondent had not done the
needful in spite of repeated requests for collecting income-tax
records for the subsequent years and an explanation of the basis
of the return filed by him for the assessment year 1988-89. In spite
of receiving amount from the Complainant, the Respondent did not
pay the income tax to the Income Tax Department, for the
assessment year 1989-90. The Complainant who received the
notice for payment from the Income Tax Department, handed over
the notice to the Respondent, but despite his repeated assurances,
no receipts had been shown or whether the amounts were
deposited with the Income Tax Department and even if paid, the
dates were not intimated. False assurances, gross negligence and
lapses on the part of the Respondent had resulted in the
attachment of the Complainant’s property and bank account, a
heavy demand of additional tax, which might be further increased
due to the levy of penalties so heavy as to beyond her capacity to
pay even after liquidating her total assets. Thus, the Respondent
had been grossly negligent in the conduct of his professional
duties. Held that the Respondent was guilty of professional
misconduct within the meaning of Sections 21 and 22 of the
Chartered Accountants Act, 1949 read with Clause (7) of Part I of
the Second Schedule.
(Smt. Sushma Shourie vs. Mahesh Taneja – Page 39 of Vol. VIII –
1 – 21(6) of Disciplinary Cases – Judgement delivered on 21st
December 2001 and published in the March, 2002 issue of
Institute’s Journal at pages 1126 to 1128)
The Respondent had failed to report various violations of the
Companies Act, 1956 (Sections 58 A, 205, 210(4), 301, 372) in his
report on the audit of the accounts of the Company. Held that the
Respondent was guilty of professional misconduct under Clause
(7) of Part I of the Second Schedule.
(Registrar of Companies, Bangalore, Karnataka vs. S.R. Bhandary
– Page 351 of Vol. VIII – 1 – 21(6) of Disciplinary Cases –
Judgement delivered dated 17th December, 2003)
Where a Chartered Accountant had issued a false Certificate,

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certifying existence of assets created by a company, on the basis
of which a Financial Corporation released a sum of Rs.4.65 lakhs
to the said Company. The Respondent, it was alleged, had certified
that the Company had invested Rs.5,04,424/- whereas on
inspection by officers of the Corporation, it was found that the
investment by the Company was only to the extent of Rs.58,169/-.
Held that the Respondent was guilty of professional misconduct
under Clause (5), (6), (7) and (8) of Part I of the Second Schedule.
(Deputy General Manager, Rajasthan Financial Corporation, Pali
vs. C.K. Vyas – Page 321 of Vol. VIII – 1 – 21(6) of Disciplinary
Cases – Judgement delivered dated 29th November, 2003)
The Respondent had been making glaring manipulations in the
Balance Sheet and P & L account of the Company such as, (i) He
has signed the balance Sheet for the year ended on 31-3-1993
without the same being authenticated by the Directors of the
Company under Section 215 of the Companies Act, 1956. (ii) the
Balance Sheet as at 29.11.1993 and 30.11.1993 prepared and
certified by the Respondent shows glaring inconsistencies
unmatched by the books of account (iii) As per the Balance Sheet
ended on 31.3.1993 and 29.11.1993 Term Loans amounting to Rs.
50,000/- which although were not paid off by the Company but in
the subsequent Balance Sheet this figure was not shown by the
Respondent. Held that the Respondent was inter alia guilty of
professional misconduct under Clauses (7) and (8) of Part I of the
Second Schedule.
(Promila Jain vs. Hardesh Kant – Page 416 of Vol. VIII – 1 – 21(6)
of Disciplinary Cases – Judgement delivered dated 6th May, 2004)
Where the chartered accountant failed to take the normal and
reasonable care for carrying out the audit and accounts of a trust
and particularly failed to carry out the verification of fixed deposit
receipts (FDRs). Held that he was guilty of professional misconduct
under clauses (7) & (8) of part I of Second Schedule of the said
Act.
(M.D. Loya in Re. - Page 751 of Volume VIII (1) of Disciplinary
Cases- Judgement dated 13th August, 2004)
A Chartered Accountant was appointed by a Institution to carry out
the audit of their funds for the year 1980-81 and 1981-82. During
his tenure, the respondent did not bring to the notice of the
Institution any lacuna or discrepancy in the system of accounting
and certified the accounts of the Institution as correct.

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Subsequently it was revealed that there was a loss of funds to the
tune of approximately Rs.3.5 Lacs by way of encashment of FDRs
before maturity which was not reflected in the cash book. Held that
he was guilty of professional misconduct under clause (7) of Part I
of the Second Schedule to the Chartered Accountants Act, 1949.
(Secretary, Institution of Military Engineers, Pune vs. M.J. Pethe-
Page 646 of Vol. VIII – 1 – 21(6) of Disciplinary Cases- Judgement
dated 12th August, 2004)
A Chartered Accountant issued certificate for consumption of raw
materials and production for the year 1985-86 & 1986-87 in respect
of Five Units without verifying the records thoroughly. It resulted in
issuance of certificates containing incorrect facts of consumption of
raw material as well as production figures of the final products.
Held that he was guilty of professional misconduct within the
meaning of Clauses (7) & (8) of part I of Second Schedule of
Chartered Accountants Act, 1949.
(JDI, Aurangabad vs. E.H. Lakkadghat - Page 609 of Vol. VIII – 1 –
21(6) of Disciplinary Cases- Judgement dated 10th August, 2004)
A Chartered Accountant issued certificate for consumption of raw
materials and production for the years 1986-87 in respect of 4 units
without taking reasonable care and caution in verifying and
checking the relevant records before issuance of the said
certificates. It was resulted in issuance of certificates where there
was no co-relation between cost of raw material and value of
finished products. Held that he was guilty of professional
misconduct within the meaning of Clauses (7) & (8) of part I of
Second Schedule read with section 21 and 22 of Chartered
Accountants Act, 1949.
(JDI, Aurangabad vs. Ramesh R. Kapadia - Page 671 of Vol. VIII –
1 – 21(6) To be published in Volume of Disciplinary Cases-
Judgement dated 12th August, 2004)
Where a Chartered Accountant issued certificates of consumption
which did not reflects the correct factual position of the
consumption of raw materials by the concerned units. Also the
same certificates has been issued without examining and
scrutinising thoroughly/properly the requisite records. Held that the
respondent was guilty of professional misconduct under clauses
(2) and (7) of part I of second schedule read with section 21 & 22
of the Chartered Accountants Act, 1949.

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(JDI, Bombay vs. B.K. Kurhade - Page 585 of Vol. VIII – 1 – 21(6)
of Disciplinary Cases- Judgement dated 12th August, 2004)
Where a Chartered Accountant issued false certificates to several
parties for past exports for monetary consideration, without
verifying any supporting records or documents. On the strength of
these false certificates, certain unscrupulous importers were able
to obtain import license, effect imports and clear these free of duty,
perpetuating a fraud on Government revenue and depriving the
Government of its legitimate revenue to the tune of several crores
of rupees. On his statements to the Department he confessed the
above fact and disclosed that he had issued these certificates on
the instance of another Chartered Accountant. In his statement
recorded under section 108 of the Custom Act, 1962, the other
Chartered Accountant had also confessed his role in this affairs as
well as the fact that he also got a share in this deal of issuing false
certificates. Held that the respondent was guilty of professional
misconduct within the meaning of clause (7) of part I of the second
schedule of the Chartered Accountants Act, 1949.
(Additional Collector of Customs, Mumbai vs. P.V. Mehta - Page
786 of Vol. VIII – 1 – 21(6) of Disciplinary Cases- Judgement dated
13th August, 2004)
Where a chartered accountant failed to bring attention to the heavy
cash transaction entered into by the assessee in his audit report
submitted in Form 3CD in terms of section 44AB of the Income Tax
Act, 1961 for the Assessment year 1988-89. Held that the
respondent was guilty of professional misconduct within the
meaning of Clauses (5) to (8) of part I of the second schedule to
the Chartered Accountants Act, 1949 in terms of section 21 read
with section 22 of the said Act.
(V.C.Agarwal in Re. - Page 768 of Vol. VIII – 1 – 21(6) of
Disciplinary Cases- Judgement dated 13th August, 2004)
Where a Chartered Accountant issued false certificates to several
parties for past exports for monetary consideration without verifying
any supporting records or documents. On the strength of these
false certificates, certain unscrupulous importers were able to
obtain import license, effect imports and clear these free of duty,
perpetuating a fraud on Government revenue and depriving the
Government of its legitimate revenue to the tune of several Crores
of Rupees. On his statements to the Department he confessed the
above fact and disclosed that he had issued these certificates for
monetary consideration and without verification of supporting

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documents on record. Held that the respondent was guilty of
professional misconduct within the meaning of clauses (2), (7) &
(8) of Part I of the second schedule of the Chartered Accountants
Act, 1949 in terms of section 21 & 22 of the said Act.
(P.N. Vittal Dass, Addl. Collector of Customs vs. P.U. Patil - Page
827 of Vol. VIII – 1 – 21(6) of Disciplinary Cases - Judgement
dated 13th August, 2004)
A member accepted Tax Audit, without communicating with the
previous auditor. Also, he was negligent while auditing as he was
required to check as to how and by what mode the fees had been
finally paid to the previous auditor, which was earlier appearing
under the list of sundry creditors. He further failed to check the
facts and look into the documentary details before signing the
report. The Council held him guilty of:
(a) professional misconduct under Clause (8) of Part I of the
First Schedule to the Chartered Accountants Act, 1949.
(b) professional misconduct under Clause (7) of Part I of the
Second Schedule to the Chartered Accountants Act, 1949.
(Bhushan Khot of M/s. Bhushan Khot & Co. vs. Mahesh M. Bhatt -
Page 424 of Vol. X – 2A – 21(4) as decided by 252nd
Council on
7th July, 2005).
The Complainant's firm was the statutory auditor of a company and
was re-appointed in Annual General Meeting for the subsequent
year. A Chartered Accountant accepted the statutory audit of a
Company while the Complainant's firm was already re-appointed in
AGM, without first communicating with the previous auditor i.e. the
Complainant, in writing. Also, the compliance of provisions of
Section 224 and 225 of the Companies Act, 1956 was not
ascertained before accepting the auditorship of the company.
Also, he accepted the position as auditor previously held by the
complainant by under cutting thereby resulting in contravention of
clause (12) of Part-I of the First Schedule to the Chartered
Accountants Act, 1949 (now deleted vide CA Amendment Act,
2006). Further, he was also negligent in conduct of professional
duties.
The Council held him guilty of:
(a) professional misconduct falling within the meaning of
Clauses (8), (9) and (12) of Part I of the First Schedule to
the Chartered Accountants Act, 1949.

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(b) professional misconduct falling within the meaning of Clause
(7) of Part I of the Second Schedule to the Chartered
Accountants Act, 1949.
(R.S. Ajmeri of M/s R. Ajmeri Associates vs. Shiv Hari Garg - Page
331 of Vol. X – 2A – 21(4) of Disciplinary Cases - Judgement dated
7th
July, 2005).
A Chartered Accountant was held guilty under Clause (7) of Part I
of the Second Schedule and “other misconduct as being a tax
consultant and a tax auditor he failed to appear before the Income
Tax Authorities for his client even after having instructions from his
client. In spite of being fully paid for his professional services and
provided all the books of account and other documents, he failed to
satisfy the Income Tax Officer because of his negligence and
careless attitude. There were several anomalies in the books of
account. The opening and closing balances as per the bank
statements and pass-books were not re-produced correctly in the
cash book.
(R.C.Dutta Vs. Kailash C.Mishra - Page 143 of Vol. IX – 1 – 21(6)
Council’s decision dated 5th January, 2005, 247th Meeting of the
Council and Judgement of High Court dated 1st March, 2007).
A Chartered Accountant was held guilty by the Council under
Clause (7) of Part I of the Second Schedule when there were some
serious irregularities and discrepancies found in the books of
account and balance sheet. The High Court also confirmed the
decision of the Council.
(Hony. Secretary Delhi Prashasan Adhikari Cooperative Group
Housing Society Ltd.Delhi. vs. Rajesh Rastogi of M/s Kaul
Associates, Delhi – Page 160 of Vol. IX – 1 – 21(6) Council’s
decision dated 3rd February, 2003 (231st Meeting of the Council)
and Judgement of High Court dated 26th March, 2007).
A Chartered Accountant issued certificates certifying the utilization
of funds by the Company for the amount granted and disbursed by
a bank without verifying the records properly before issuing the
aforesaid certificates. Also, the said certificate did not reflect the
end use of the funds. He was grossly negligent in issuing the said
certificate(s). The auditor knowingly certified the end use of money
received by the auditee incorrectly and improperly which is
undoubtedly an un-pardonable act on the part of the Respondent
and thus was held guilty by the Council under Clauses (5), (6), (7)

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and (8) of Part I of the Second Schedule which was accepted by
the High Court.
(Thampy Mathews,Dy. General Manager, IIBI Vs. R.K. Tayal, Delhi
– Page 254 Vol. IX – 1 – 21(6) Decision of the Council on 25th
June, 2004, 243rd Meeting of the Counciland Judgement of High
Court dated 23rd July, 2007).
A Chartered Accountant wrote the books of account of the
Complainant Association apart from conducting the audit. While
preparing and auditing the accounts, he did not comply with the
decision of the Complainant Association taken in its Annual
General Body Meeting, thereby being grossly negligent in his
conduct. He neither ensured nor qualified his report regarding non-
provision of various liabilities in the accounts such as salaries and
wages, electricity charges, water charges etc., which again shows
that he was grossly negligent in the discharge of his duties as
Chartered Accountant and Auditor. None of the figures in the
Balance Sheet and Income & Expenditure Account of the
Complainant-Association for the year 1998-99 certified by him
tallied with the balances in the unauthenticated Cash Book and
Ledger. He further did not prove the accuracy of the accounts
prepared and audited by him nor furnished details of various items
appearing in the statements certified by him. The Council held him
guilty under Clauses (6), (7), (8) & (9) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 and also guilty of
“Other Misconduct” under Section 22 read with Section 21 of the
Chartered Accountants Act, 1949.
The High Court also accepted the decision of the Council.
(Hon. General Secretary, Rohit House Occupants Welfare
Association, New Delhi vs. K.K. Gupta, New Delhi – Page 299 of
Vol. IX–1–21(6) Decision of the Council dated 22nd July, 2004,
244th Meeting of the Council and Judgement of High Court dated
25th September, 2007).
Where a Chartered Accountant firm failed to complete the audit of
a Bank without any justification and being a grossly negligent. Held
that, Respondent firm was guilty of professional misconduct within
the meaning of clause (7) of Part I of the Second Schedule to the
Chartered Accountants Act, 1949.
(R.K. Goswami, Administrator, Delhi Nagrik Sehkari Bank Ltd. vs.
M/s. Dayal Singh & Co. – Pg.288 of Vol. IX (1) of the Disciplinary
Cases- Judgement of Hon’ble High Court dated 7th
August, 2008.)

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Clause (8): fails to obtain sufficient information which is necessary for
expression of an opinion or its exceptions are sufficiently
material to negate the expression of an opinion;
It is expected of a Chartered Accountant to express his opinion on
the truth and fairness of statements of accounts after examining their
authenticity with reference to information which is necessary and
explanations given to him. A Chartered Accountant must determine the
extent of information which should be obtained by him before he
expresses an opinion on the financial statements submitted to him for
report.
The accountant should not express an opinion before obtaining the
required data and information. The latter part of the clause enjoins that
where due to inadequacy of information or data the report has to be
circumscribed to an extent that it would cease to be of any expression
of a categorical opinion, the auditor should clearly express his
disclaimer in no uncertain terms. For example, if the auditor has not
seen any evidence of the existence and/or valuation of the investment
which constitute the only asset of a Company, he should not say that:-
“Subject to the verification of the existence and value of the
investments the Balance Sheet shows a true and fair view.....etc.”
On the other hand he should say that -
“As we have been unable to verify the existence and value of the
investments of the Company, we are unable to state whether the
Balance Sheet shows a true and fair view.....etc.”
Standard on Auditing (SA) 700, “The Auditor’s Report on Financial
Statements” establishes standards on the form and content of the
auditor’s report issued as a result of an audit performed by an auditor
of the financial statements of an entity. It requires that the auditor’s
report should contain a clear written expression of opinion on the
financial statements taken as a whole. As per SA 700;
(1) An unqualified opinion should be expressed when the auditor
concludes that the financial statements give a true and fair view in
accordance with the financial reporting framework used for the
preparation and presentation of the financial statements. An
unqualified opinion indicates, implicitly, that any changes in the
accounting principles or in the method of their application, and the
effects thereof, have been properly determined and disclosed in the
financial statements. An unqualified opinion also indicates that:
(a) the financial statements have been prepared using the

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generally accepted accounting principles, which have been
consistently applied;
(b) the financial statements comply with relevant statutory
requirements and regulations; and
(c) there is adequate disclosure of all material matters relevant
to the proper presentation of the financial information,
subject to statutory requirements, where applicable.
(2) An auditor’s report is considered to be modified when it
includes:
(a) Matters That Do Not Affect the Auditor’s Opinion (emphasis
of matter) and
(b) Matters That Do Affect the Auditor’s Opinion (qualified
opinion, disclaimer of opinion, adverse opinion)
Uniformity in the form and content of each type of modified report
will enhance the user’s understanding of such reports. Accordingly,
this SA includes suggested wordings to express an unqualified opinion
as well as examples of modifying phrases for use when issuing
modified reports.
(3) In certain circumstances, an auditor’s report may be modified
by adding an emphasis of matter paragraph to highlight a matter
affecting the financial statements which is included in a note to the
financial statements that more extensively discusses the matter. The
addition of such an emphasis of matter paragraph does not affect the
auditor’s opinion. The paragraph would preferably be included
preceding the opinion paragraph and would ordinarily refer to the fact
that the auditor’s opinion is not qualified in this respect.
(4) An auditor may not be able to express an unqualified opinion
when either of the following circumstances exists and, in the auditor’s
judgment, the effect of the matter is or may be material to the financial
statements: (a) there is a limitation on the scope of the auditor’s work,
which could lead to a qualified opinion or a disclaimer of opinion; or (b)
there is a disagreement with management regarding the acceptability
of the accounting policies selected, the method of their application or
the adequacy of financial statement disclosures, which could lead to a
qualified opinion or an adverse opinion
— A qualified opinion should be expressed when the auditor
concludes that an unqualified opinion cannot be expressed
but that the effect of any disagreement with management is
not so material and pervasive as to require an adverse

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opinion, or limitation on scope is not so material and
pervasive as to require a disclaimer of opinion. A qualified
opinion should be expressed as being ‘subject to’ or ‘except
for’ the effects of the matter to which the qualification
relates.
— An adverse opinion should be expressed when the effect of
a disagreement is so material and pervasive to the financial
statements that the auditor concludes that a qualification of
the report is not adequate to disclose the misleading or
incomplete nature of the financial statements.
— A disclaimer of opinion should be expressed when the
possible effect of a limitation on scope is so material and
pervasive that the auditor has not been able to obtain
sufficient appropriate audit evidence and is, accordingly,
unable to express an opinion on the financial statements.
(5) Whenever the auditor expresses an opinion that is other
than unqualified, a clear description of all the substantive reasons
should be included in the report and, unless impracticable, a
quantification of the possible effect(s), individually and in aggregate, on
the financial statements should be mentioned in the auditor’s report. In
circumstances where it is not practicable to quantify the effect of
modifications made in the audit report accurately, the auditor may do
so on the basis of estimates made by the management after carrying
out such audit tests as are possible and clearly indicate the fact that
the figures are based on management estimates. Ordinarily, this
information would be set out in a separate paragraph preceding the
opinion or disclaimer of opinion and may include a reference to a more
extensive discussion, if any, in a note to the financial statements.
For detailed consideration of the subject, including illustrative
formats of auditor’s report in different circumstances, the members
may refer to Standard on Auditing (SA) 700, “The Auditor’s Report on
Financial Statements”.
The decisions of the Courts on this clause are briefly presented
below:-
Where a Chartered Accountant relying on the work of the internal
auditor of a Company qualified his report that the books of account
and the supporting vouchers had been examined by the internal
auditor of the Company, the Council taking the view that the
qualification amounted to an exception sufficiently material to
negate the expression of an opinion, found him guilty of

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misconduct under the latter part of Clause (8). As a general rule, a
statutory auditor would be guilty under this Clause, if he performed
his work so recklessly as to give his report without looking into the
books of account of a Company, on the basis of the work of the
internal auditor whose opinion turned out to be false.
(J.C. Chandiok in Re:- Page 367 of Vol. IV of the Disciplinary
Cases and pages 681-683 of June, 1964 issue of the Institute’s
Journal - Judgement delivered on 31st January, 1964).
Where a Chartered Accountant issued a certificate of circulation of
a periodical without going into the most elementary details of how
the circulation of a periodical was being maintained i.e. by not
looking into the financial records, bank statements or bank pass
books, by not examining evidence of actual payment of printers
bills and by not caring to ascertain how many copies were sold and
paid for. - Held he was guilty under Clause (8).
(Registrar of Newspapers for India vs. K. Rajinder Singh - Page
920 of Vol. IV of the Disciplinary Cases and pages 77-82 of July,
1971 issue of the Institute’s Journal - Judgement delivered on 7th
May, 1971).
A Chartered Accountant, without examination of stock register and
other relevant matters issued a wrong consumption certificate on
the basis of which licence of higher value, for which the unit was
not entitled, was issued by Controller of Imports & Exports. The
examination done by the Chartered Accountant was so restricted
that he could not have obtained the information necessary to
warrant the expression of an opinion regarding consumption of raw
material and components. - Held the Chartered Accountant was
guilty of professional misconduct under Clause (8).
(T.S. Vaidyanatha Iyer in Re:- Page 153 of Vol.V of the Disciplinary
cases and pages 211-212 of April, 1977, issue of the Institute’s
Newsletter - Judgement delivered on 27th January, 1977).
Clean certification of circulation was issued by a Chartered
Accountant without any qualification and thereby expressing the
opinion that he had conducted the audit in the manner prescribed
by the ABC regulations undertaken by him. The interpolation of
entries in the books and the absence of documents to support the
receipt of monies from the agent should have raised the suspicion
and he should have asked for further information in that regard.
The Chartered Accountant was required to verify the stocks and
whether the agent had accounted for all the sale proceedings. He

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was wrong in accepting the entries in the books without asking for
further information. - The Chartered Accountant was required not
merely to verify the arithmetical accuracy of the accounts but he
ought to have enquired into its substantial accuracy with all the
skill, care and caution. If the Chartered Accountant had
conscientiously audited the accounts and in accordance with the
instruction of the ABC regulations, he could have probed into the
matter to the bottom to find out whether the purported sale with
agents was genuine or it was only a make believe arrangement.
Held the Chartered Accountant was guilty of misconduct under
Clause(8).
(Audit Bureau of Circulations Ltd. vs. S. Narayanan - Page 181 of
Vol.V of the Disciplinary Cases and Pages 2-5 of July, 1977 issue
of the Institute’s Newsletter - Judgement delivered on 14th April,
1977)
Where the Complainant had sanctioned an additional loan to a
Company on the basis of a proforma balance sheet duly certified
by a Chartered Accountant while the audited balance sheet of the
Company for the same period duly certified by the statutory
auditors revealed a completely different picture. Held that the
Chartered Accountant was guilty under clauses (7) & (8).
(Assam Financial Corporation vs. S.K. Beria - Page 17 of Vol.VII
(1) of Disciplinary Cases - Judgement dated 10th July, 1992)
Where a Chartered Accountant had issued a false Certificate,
certifying existence of assets created by a Company on the basis
of which Rajasthan Financial Corporation, Pali, released a sum of
Rs.4.65 lakhs to the said Company. The Respondent, it was
alleged, had certified that the Company had invested Rs.5,04,424/-
whereas on inspection by officers of the Corporation, it was found
that the investment by the Company was only to the extent of
Rs.58,169/-. Held that the Respondent was guilty of professional
misconduct under Clause (5), (6), (7) and (8) of Part I of the
Second Schedule.
(Deputy General Manager, Rajasthan Financial Corporation, Pali
vs. C.K. Vyas – Page 321 of Vol. VIII – 1 – 21(6) of Disciplinary
Cases – Judgement delivered dated 29th November, 2003)
The Respondent had been making glaring manipulations in the
Balance Sheet and P & L account of the Company such as, (i) He
has signed the balance Sheet for the year ended on 31-3-1993
without the same being authenticated by the Directors of the

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Company under Section 215 of the Companies Act, 1956. (ii) the
Balance Sheet as at 29.11.1993 and 30.11.1993 prepared and
certified by the Respondent shows glaring inconsistencies
unmatched by the books of account (iii) As per the Balance Sheet
ended on 31.3.1993 and 29.11.1993 Term Loans amounting to
Rs.50,000/- which although were not paid off by the Company but
in the subsequent Balance Sheet this figure was not shown by the
Respondent. Held that the Respondent was inter alia guilty of
professional misconduct under Clauses (7) and (8) of Part I of the
Second Schedule.
(Promila Jain vs. Hardesh Kant – Page 416 of Vol. VIII – 1 – 21(6)
of Disciplinary Cases – Judgement delivered dated 6th May, 2004)
Where the chartered accountant failed to take the normal and
reasonable care for carrying out the audit and accounts of a trust
and particularly failed to carry out the verification of fixed deposit
receipts (FDRs). Held that he was guilty of professional misconduct
under clauses (7) & (8) of part I of Second Schedule of the said
Act.
(M.D. Loya in Re. - Page 751 of Vol. VIII – 1 – 21(6) of Disciplinary
Cases- Judgement dated 13th August, 2004)
A Chartered Accountant issued certificate for consumption of raw
materials and production for the year 1985-86 & 1986-87 in respect
of Five Units without verifying the records thoroughly. It resulted in
issuance of certificates containing incorrect facts of consumption of
raw material as well as production figures of the final products.
Held that he was guilty of professional misconduct within the
meaning of Clauses (7) & (8) of part I of Second Schedule of
Chartered Accountants Act, 1949.
(JDI, Aurangabad vs. E.H. Lakkadghat - Page 609 of Vol. VIII – 1 –
21(6) of Disciplinary Cases- Judgement dated 10th August, 2004)
A Chartered Accountant issued certificate for consumption of raw
materials and production for the years 1986-87 in respect of 4 units
without taking reasonable care and caution in verifying and
checking the relevant records before issuance of the said
certificates. It was resulted in issuance of certificates where there
was no co-relation between cost of raw material and value of
finished products. Held that he was guilty of professional
misconduct within the meaning of Clauses (7) & (8) of part I of
Second Schedule read with section 21 and 22 of Chartered
Accountants Act, 1949.

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(JDI, Aurangabad vs. Ramesh R. Kapadia - Page 671 of Vol. VIII –
1 – 21(6) of Disciplinary Cases- Judgement dated 12th August,
2004)
Where a chartered accountant failed to bring attention to the heavy
cash transaction entered into by the assessee in his audit report
submitted in Form 3CD in terms of section 44AB of the Income Tax
Act, 1961 for the Assessment year 1988-89. Held that the
respondent was guilty of professional misconduct within the
meaning of Clauses (5), (6), (7) and (8) of part I of the second
schedule to the Chartered Accountants Act, 1949 in terms of
section 21 read with section 22 of the said Act.
(V.C.Agarwal in Re. - Page 768 of Vol. VIII–1–21(6) of Disciplinary
Cases- Judgement dated 13th August, 2004)
Where a Chartered Accountant issued false certificates to several
parties for past exports for monetary consideration without verifying
any supporting records or documents. On the strength of these
false certificates, certain unscrupulous importers were able to
obtain import license, effect imports and clear these free of duty,
perpetuating a fraud on Government revenue and depriving the
Government of its legitimate revenue to the tune of several Crores
of Rupees. On his statements to the Department he confessed the
above fact and disclosed that he had issued these certificates for
monetary consideration and without verification of supporting
documents on record. Held that the respondent was guilty of
professional misconduct within the meaning of clauses (2), (7) &
(8) of Part I of the second schedule of the Chartered Accountants
Act, 1949 in terms of section 21 & 22 of the said Act.
(P.N. Vittal, Addl. Collector of Customs, Mumbai vs. P.U. Patil -
Page 827 of Vol. VIII – 1 – 21(6) of Disciplinary Cases - Judgement
dated 13th August, 2004)
A Chartered Accountant issued certificates certifying the utilization
of funds by the Company for the amount granted and disbursed by
a bank without verifying the records properly before issuing the
aforesaid certificates. Also, the said certificate did not reflect the
end use of the funds. He was grossly negligent in issuing the said
certificate(s). The auditor knowingly certified the end use of money
received by the auditee incorrectly and improperly which is
undoubtedly an un-pardonable act on the part of the Respondent
and thus was held guilty by the Council under Clauses (5), (6), (7)
and (8) of Part I of the Second Schedule which was accepted by
the High Court.

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(Thampy Mathews, Dy. General Manager, IIBI Vs. R.K. Tayal,
Delhi - Page 254 of Vol. IX – 1 – 21(6) Decision of the Council on
25th June, 2004, 243rd Meeting of the Counciland Judgement of
High Court dated 23rd July, 2007).
A Chartered Accountant wrote the books of account of the
Complainant Association apart from conducting the audit. While
preparing and auditing the accounts, he did not comply with the
decision of the Complainant Association taken in its Annual
General Body Meeting, thereby being grossly negligent in his
conduct. He neither ensured nor qualified his report regarding non-
provision of various liabilities in the accounts such as salaries and
wages, electricity charges, water charges etc., which again shows
that he was grossly negligent in the discharge of his duties as
Chartered Accountant and Auditor. None of the figures in the
Balance Sheet and Income & Expenditure Account of the
Complainant-Association for the year 1998-99 certified by him
tallied with the balances in the unauthenticated Cash Book and
Ledger. He further did not prove the accuracy of the accounts
prepared and audited by him nor furnished details of various items
appearing in the statements certified by him. The Council held him
guilty under Clauses (6), (7), (8) & (9) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 and also guilty of
“Other Misconduct” under Section 22 read with Section 21 of the
Chartered Accountants Act, 1949.
The High Court also confirmed the decision of the Council.
(Hon. General Secretary, Rohit House Occupants Welfare
Association, New Delhi vs. K.K. Gupta, New Delhi– Page 299 of
Vol. IX – 1 – 21(6) Decision of the Council dated 22nd July, 2004,
244th Meeting of the Council and Judgement of High Court dated
25th September, 2007)
Clause (9): fails to invite attention to any material departure from the
generally accepted procedure of audit applicable to the
circumstances;
This clause implies that the audit should be performed in
accordance with “generally accepted procedure of audit applicable to
the circumstances” and if for any reason the auditor has not been able
to perform the audit in accordance with such procedure, his report
should draw attention to the material departures from such procedures.
What constitutes “generally accepted audit procedure” would depend
upon the facts and circumstances of each case, but guidance is
available from the various pronouncements of the Institute issued from

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time to time by way of Quality Control and Engagement Standards,
Statements, General Clarifications, Guidance Notes and Technical
Guides, Practice Manuals, Studies and Other Papers.
As per announcements of the Council regarding status of various
documents issued by the Institute, the ‘Standards on Auditing’ have
been issued with a view to securing compliance by members on
matters which, in the opinion of the Council, are critical for the proper
discharge of their functions. ‘Standards on Auditing’ therefore are
mandatory. Accordingly, while discharging their attest function, it will
be the duty of the members of the Institute to ensure that the
‘Standards’ relating to auditing matters are followed in the audit of
financial information covered by their audit reports. If, for any reason, a
member has not been able to perform an audit in accordance with
such ‘Standards’, his report should draw attention to the material
departures therefrom.
The Council of the Institute of Chartered Accountants of India has
issued the “Preface to the Standards on Quality Control, Auditing,
Review, Other Assurance and Related Services” in July, 2007, to
facilitate understanding of the scope and authority of the
pronouncements of the AASB issued under the authority of the Council
of the Institute. The Revised Preface is effective from April 1, 2008. As
per the Revised Preface, the scope and authority of the various
pronouncements of the Auditing and Assurance Standard Board
(AASB) issued under the authority of the Council of the Institute is as
under:
(1) Standards on Quality Control (SQCs), issued by the AASB
under the authority of the Council, are to be applied for all services
covered by the Engagement Standards.
(2) The Standards on Auditing (SAs) are formulated in the context
of an audit of financial statements by an independent auditor. They are
to be adapted as necessary in the circumstances when applied to
audits of other historical financial information. In conducting an audit,
the overall objective of the auditor is to obtain reasonable assurance
about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to report on
the financial statements in accordance with the auditor’s findings.
However, owing to the inherent limitations of an audit, there is an
unavoidable risk that some material misstatements of the financial
statements will not be detected, even though the audit is properly
planned and performed in accordance with the SAs. In all cases, when
this overall objective has not been or cannot be achieved, the SAs

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require the auditor to modify the auditor’s opinion accordingly or
withdraw from the engagement as may be appropriate, depending
upon the facts and circumstances of each case. The auditor applies
each Standard on Auditing (SA) relevant to the audit. An SA is relevant
when the SA is in effect and the circumstances addressed by the SA
exist.
(3) It is the duty of the professional accountants to ensure that the
Standards/Statements/General Clarifications are followed in the
engagements undertaken by them. The need for the professional
accountants to depart from a relevant requirement is expected to arise
only where the requirement is for a specific procedure to be performed
and, in the specific circumstances of the engagement, that procedure
would be ineffective. If because of that reason, a professional
accountant has not been able to perform an engagement procedure in
accordance with any Standard/Statement/General Clarification, he is
required to document how alternative procedures performed achieve
the purpose of the procedure, and, unless otherwise clear, the reasons
for the departure. Further, his report should draw attention to such
departures. However, a mere disclosure in his report does not absolve
a professional accountant from complying with the applicable
Standards/Statements/General Clarifications.
(4) Guidance Notes are issued to assist professional accountants
in implementing the Engagement Standards and the Standards on
Quality Control issued by the AASB under the authority of the Council.
Guidance Notes are also issued to provide guidance on other generic
or industry specific audit issues, not necessarily arising out of a
Standard. Professional accountants should be aware of and consider
Guidance Notes applicable to the engagement. A professional
accountant who does not consider and apply the guidance included in
a relevant Guidance Note should be prepared to justify the
appropriateness and completeness of the alternate procedures
adopted by him to deal with the objectives and basic principles set out
in the Guidance Note.
(5) Technical Guides are ordinarily aimed at imparting broad
knowledge about a particular aspect or of an industry to the
professional accountants. Practice Manuals are aimed at providing
additional guidance to professional accountants in performing audit
and other related assignments. Studies and other papers are aimed at
promoting discussion or debate or creating awareness on issues
relating to quality control, auditing, assurance and related service,
affecting the profession. Such publications do not establish any basic
principles or essential procedures to be followed in audit, review, other

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assurance or related services engagements, and accordingly, have no
authority of the Council attached to them.
An auditor of a Company is appointed by the shareholders to
perform certain statutory functions and duties and it is expected of him
that he will in fact, perform these functions and duties. The failure to
perform a statutory duty in the manner required is not excused merely
by giving a qualification or reservation in auditor’s report. For example,
if an auditor fails to verify the cash balance in circumstances where
such verification was necessary, feasible and material, it is not
sufficient for him merely to state in his report that he did not verify the
cash balance. Consequently when giving any reservations or
qualifications in the auditors report as required under this clause, a
member would be well advised to indicate clearly the reasons why he
was unable to perform the audit in accordance with generally accepted
procedures and standards.
It is not possible to exhaustively deal with instances or accepted
procedure of audit applicable to special cases. Two instances of an
audit requiring a special procedure are given below:-
Very often members are required to certify the figures of circulation
of newspapers, magazines etc. by their clients on behalf of the Audit
Bureau of Circulations Ltd. Members are normally supplied by the ABC
with the Rules and Regulations under which the certification of
circulation is to be carried out. Members are also asked to give their
acceptance in writing that they will observe the rules of procedure
envisaged to report upon any lapse of such special requirements, even
of an insignificant nature.
Similarly, in the case of verification on behalf of banks, the rules or
procedure for conducting such audit are different from the normal rules
applicable to audits under the Companies Act. Members are required
to be very familiar with the special procedure required in these matters
and act accordingly.
The decisions of the Court on this clause are briefly summarised
below:-
Where a Chartered Accountant did not conduct sample checking of
the bank accounts in relation to the accounts of the Company and
did not carry out vouching with respect to the transactions reflected
in the accounts of the Company and depended upon his assistant
who was a Chartered Accountant and experienced clerk who were
entrusted with the auditing work. - Held he was guilty under
Clauses (7) (8) and (9).

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(M.S. Ramanathan vs. A. Umanath Rao - Page 750 of Vol. IV of
the Disciplinary cases and page 165 of September, 1968 issue of
Institute’s Journal - Judgement delivered on 24th June, 1968).
Where the form of the certificate prescribed by the Audit Bureau of
Circulations Ltd., did not permit any alteration or explanation being
given in the certificate itself, the Chartered Accountant had
recorded, in a separate report the true state of affairs which he had
found. Except making a report which explained the correct position
he had no authority to indicate in the certificate itself the true
position. But the separate report which he had sent along with the
Income Certificate to the newspaper concerned had not been
forwarded by the newspaper to the Bureau. It was only later on that
the ABC introduced a change in the procedure of audit by
permitting a report being sent along with the Incoming Certificate in
the various columns were subject to his separate report. Held he
was guilty under Clauses (7) and (9).
(Audit Bureau of Circulations Ltd. vs. M.L. Nanda - Page 736 of
Vol.IV of the Disciplinary Cases and page 628 of May, 1968 issue
of the Institute’s Journal - Judgement delivered on 26th February,
1968).
Where a Chartered Accountant failed to verify the actual
disbursement of the amount by examining the various items of
purchases and insisting for the bills to be produced in respect of
the various items before issuing his certificate as mere payment
would not constitute utilisation of the amount for the purpose for
which it was meant. - Held he was guilty under Clauses (7), (8) and
(9).
(Punjab State Govt. vs. K.N. Chandla - Page 946 of Vol. IV of the
Disciplinary Cases and pages 140-142 of August, 1972 issue of
the Institute’s Journal - Judgement delivered on 15th June, 1972).
Where a Chartered Accountant had issued publishers certificates
of circulations in disregard of the Complainants Rules which he
had undertaken to comply with -Held he was guilty under clauses
(5), (6) & (9) of Part I of the Second Schedule.
(Audit Bureau of Circulations vs. V.I. Oommen - Page 51 of Vol.VII
(1) of disciplinary cases - judgement dated 6th October, 1995)
A Chartered Accountant had checked the cash book totals but not
the bank column totals, had verified all the transactions in the bank
columns but not the contra-entries, had taken the casting only of
personal ledger and that too not of all accounts, had resorted to

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test check when there was no system of internal check, had not
seen the pay-in-slips, had not checked the bank reconciliation
statements for all the months. - Held he was guilty of professional
misconduct under Clauses (7), (8) and (9).
(Air Commodore Dilbagh Singh vs. E.S. Venkataraman - page 100
of Vol. V of the Disciplinary Cases and page 224 of September, 76
issue of Institute’s Journal - Judgement delivered on 5th July,
1976)
A Chartered Accountant wrote the books of account of the
Complainant Association apart from conducting the audit. While
preparing and auditing the accounts, he did not comply with the
decision of the Complainant Association taken in its Annual
General Body Meeting, thereby being grossly negligent in his
conduct. He neither ensured nor qualified his report regarding non-
provision of various liabilities in the accounts such as salaries and
wages, electricity charges, water charges etc., which again shows
that he was grossly negligent in the discharge of his duties as
Chartered Accountant and Auditor. None of the figures in the
Balance Sheet and Income & Expenditure Account of the
Complainant-Association for the year 1998-99 certified by him
tallied with the balances in the unauthenticated Cash Book and
Ledger. He further did not prove the accuracy of the accounts
prepared and audited by him nor furnished details of various items
appearing in the statements certified by him. The Council held him
guilty under Clauses (6), (7), (8) & (9) of Part I of the Second
Schedule to the Chartered Accountants Act, 1949 and also guilty of
“Other Misconduct” under Section 22 read with Section 21 of the
Chartered Accountants Act, 1949.
The High Court also accepted the decision of the Council.
(Hon. General Secretary, Rohit House Occupants Welfare
Association, New Delhi vs. K.K. Gupta, New Delhi – Page 299 of
Vol. IX – 1 – 21(6) Decision of the Council dated 22nd July, 2004,
244th Meeting of the Council and Judgement of High Court dated
25th September, 2007).
Clause (10): fails to keep moneys of his client other than fees or
remuneration or money meant to be expended in a
separate banking account or to use such moneys for
purposes for which they are intended within a reasonable
time.
In the course of his engagement as a professional accountant, a

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member may be entrusted with moneys belonging to his client (other
than fees or remuneration or money meant to be expended). If he
should receive such funds, it would be his duty to deposit them in a
separate banking account, and to utilise such funds only in accordance
with the instructions of the client or for the purposes intended by the
client within a reasonable time. In this connection the Council has
considered some practical difficulties of the members and the following
suggestions have been made to remove these difficulties:-
(i) An advance received by a Chartered Accountant against
services to be rendered does not fall under Clause (10) of
Part I of the Second Schedule.
(ii) Moneys received for expenses to be incurred, for example,
payment of prescribed statutory fees, purchase of stamp
paper etc., which are intended to be spent within a
reasonably short time need not be put in a separate bank
account. For this purpose, the expression reasonably short
time, would depend upon the circumstances of each case.
(iii) Moneys received for expenses to be incurred which are not
intended to be spent within a reasonably short time as
aforesaid, should be put in a separate bank account
immediately.
(iv) Moneys received by a Chartered Accountant, in his capacity
as trustee, executor, liquidator, etc. must be put in a
separate bank account immediately.
The decisions of the Court on this clause are briefly mentioned
below.
What constitutes clients’ money
The expression “moneys of his client” has to be understood as
moneys placed in the hands of a Chartered Accountant in
connection with the discharge of his duties qua Chartered
Accountant and for the purposes connected therewith.
(National Insurance Co. Ltd. vs. B. Mukherjee - Page 288 of Vol.III
of the Disciplinary Cases and pages 150-155 of the September,
1957 issue of the Institute’s Journal-Judgement delivered on 4th
July, 1957).
Failure to keep moneys of client in a separate banking
account
Where a Chartered Accountant appointed as liquidator of a

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Company had wrongfully and without the knowledge and consent
of the complainants disposed of a machine which was duly
charged in their favour. The Council had found the Respondent
guilty under Clauses (7) and (10)- Held by the High Court that they
were not applicable. Clause (7) was gross negligence in the
conduct of professional duties. The liquidator in this case was not
an auditor of the Company in liquidation and was not therefore
practising his professional duties. Similarly clause (10) was failure
to keep moneys of his client in a separate banking account. The
Company in liquidation was not a client of the complainants either
within the meaning of clause (10). Referring to the Respondents
failure to keep moneys in a separate banking account, the High
Court considered the evidence of the Respondent which did not
give a clear picture in order to come to a final and definite
conclusion. Setting aside the order of the Council, the Court
reprimanded the Respondent.
(Sunderdas Thakersey & Bros. vs. P.K. Mukherji - Page 452 of Vol.
IV of the Disciplinary Cases and pages 150-155 of September,
1965 issue of the Institute’s Journal -Judgement delivered on 22nd
April, 1965).
A Chartered Accountant was found guilty of professional
misconduct under Clauses (7) & (10) of Part I of the Second
Schedule to the Act for having failed to account satisfactorily for
the various amounts entrusted to him by the client and for failure to
keep them in a separate bank account. A refund voucher issued in
the name of the client by the Income Tax Department was credited
by him to his account in the Bank.
(N.S. Chenoy vs. K.V. Subba Rao - Page 958 of Vol. IV of
Disciplinary Cases and pages 207-214 of October, 1973 issued of
the Institute’s Journal - Judgement delivered on 6th April, 1973)
A Chartered Accountant was found guilty of not keeping the clients
money in a separate account and not using it for the purpose for
which it was given.
(Maj. R.S. Murgai (Rtd.) vs. (1) S.K. Gadh & (2) V.K. Bajaj, decided
on 10-8-1981 - Page 222 of Vol. VI(1) of the Disciplinary cases).
A Chartered Accountant received large sums of money from his
c